Real estate holdings present some unique and important estate planning issues.

First, consider whether or not you might need Medicaid. If you do not have long term care insurance, and your net worth is less than 1 million, the answer is probably yes.

If your home is paid off, then you can take steps now to make sure the state will NOT be able to get your house when it seeks recovery (the filing of a lien against your house). How?

You can keep the full legal right to use and enjoy your home during your life or joint lives (for husbands and wives) and give away the rest to your children or to trusts for your children. If this is done sufficiently in advance, then the state will not be able to recover your home and the home will not be lost.

Second, it must be determined “how” real estate is owned. This is important because the manner of ownership dictates to whom it passes, and whether it goes through probate or not.

A perfectly good plan can be derailed if real estate is not owned properly.

For example, assume:

  1. Beau’s will says all his assets are to be given to his children, Jenny and Sue, in equal shares, and
  2. The real estate Beau owns is owned by Beau and Sue as “joint tenants with the right of survivorship.” Jenny is not on the title. When Beau dies, who gets his real estate? The answer is Sue gets it. Jenny was disinherited, as to the real estate, by mistake.

Third, it must be determined what the real estate’s value might be (now and in the future), what it cost, and whether there will be unnecessary administrative burden if it is kept in one person’s individual name.

For purposes of the federal estate tax, the value of real estate is important for determining who, within a couple, should own the real estate. Transfers can be made between U.S. citizen spouses (or their trusts) with no adverse tax consequences with deeds.

Certain steps need to be taken to insure homestead exemption is not lost and special assessments are not lost. The cost of real estate is important for determining how best to utilize the current law, which steps up basis of assets to date of death value.

If Mom and Dad paid $200,000 for a house and it was worth $500,000 when the survivor died, then the kids get the house with an income tax basis of $500,000. This translates into little or no capital gains tax being due when the kids sell the house.

Also, if one owns real estate in more than one state, one should consider creating a revocable trust that will own that real estate so it avoids probate in another state.

Mark F. Winn, J.D., Master of Laws (LL.M.) in estate planning, is a local asset protection, estate planning and elder law attorney. www.mwinnesq.com