To understand how to protect property, you must first know what risks threaten your property. Among the most significant risks are 1. The cost of long-term care; and 2. probate.
These two risks go hand and hand. The reason is because the risk of long-term care is typically realized in the probate process, as I’ll explain below. First, why are these two risks significant?
Long-term care is a reality of a vast majority of the population. Over 70% of individuals over 65 will need some type of long-term care, which can cost anywhere from $5,000 to $10,000 per month. Most people cannot afford long-term care and either sell off everything they’ve worked for—including their real property—or they rely on some type of benefit to pay fro long-term care. Either way, their real property can be subject to risk, either through using it to pay the cost of care or by recovery of any benefits paid out after death.
This is where probate becomes significant. Let’s say someone racked up a nursing home bill or utilized Medicaid to pay for their care. In either instance, the nursing home or Medicaid would want to get paid. They opportunity they have to get paid, however, is limited to the probate process. North Carolina is a “limited recovery state,” meaning that creditors—such as the nursing home or Medicaid—are limited to recovery from the probate process. Therefore, keeping assets out of probate is a key aspect of protection.
But, how do we protect from both risks? Let’s look at a few ways to accomplish both.
Protect your Home with the Ladybird Deed
You’re allowed to own a home and qualify for benefits like Medicaid or VA Aid and Attendance to pay for long-term care. But you still want to avoid probate with the home. Many people make the mistake of giving their home away (e.g. putting it in their child’s name) to avoid probate. However, the gift of the home will disqualify the giver from benefits for a significant period of time.
Ideally, you would keep the home in your name and under your control for the rest of your life, while avoiding probate with the home. The tool to accomplish that goal is the Ladybird Deed.
Protect your Other Real Property with a Percentage Interest Deed.
You can also own real property, other than your home, and qualify for benefits. However, you cannot own 100%. You also must be careful in how you gift any interest in real property, because you want to maintain the ability to qualify for benefits in the future.
Giving someone a percentage interest in your property can help you qualify for benefits. Additionally, the deed (the tool used to convey the percentage interest) can also convey a “right of survivorship.” A right of survivorship will allow you to avoid probate with the additional real property.
Protect Everything with a Trust
Trusts are essentially pots were you can put your assets fro many reasons, including protection from the risks of long-term care or probate. However, unlike the tools listed above, trusts are good pre-planning tools. This means that they are most appropriately used to plan ahead, not necessarily in an emergency or crisis situation where the need for care is imminent.
Pre planning is incredibly important for this reason. The proper trust can be used to protect all of your assets. The way this is accomplished is that, through the use of a convertible or irrevocable trust, the assets you are seeking to protect are exempted for long-term care benefits purposes. In other words, if you can only have a certain amount of assets and excess assets will “disqualify” you from a benefit, a trust can assist in getting you qualified. A trust will also allow you to avoid probate with any asset placed into trust, thereby avoiding the long, difficult, expensive, and risky process altogether.
Real property is most valuable asset for most people. For many, it’s what is going to help give the next generation a leg up. Don’t be afraid to take control of your future and protect your property. If you have question on asset protection, give the experienced attorneys at McIntyre Elder Law a call at (704)-259-7040 and schedule your free consultation today.
Brenton S. Begley
Attorney at Law