Legal Question in Elder Law in Massachusetts

Re: Life Estate versus Irrevocable Trust

The answer to your question is not simple. Any thing they do has to be considered in light of the 5 year look back rule for gifts, whether it is a life estate or an irrevocable trust.

There are many different approaches to protecting your parents assets and will depend on their current age and health, what insurance if any they have; retirement benefits if any. Each approach has its good points and bad. Some of the issues will relate to capital gains issues if your parents need to sell their home and capital gains; some will relate to medicaid and mass health and some will relate to MA inheritance taxes (assuming an estate of no more than $1 Million Federal estate taxes will not be an issue).

They should consult an estate planning attorney with experience in elder law.

Please feel free to have your parents contact me without obligation.

Re: Life Estate versus Irrevocable Trust

The reason you may not be able to get a "straight answer" is that the answer is very fact-specific. More facts are needed here -- there are significant MassHealth, income (and possibly estate) tax, and health care needs and cash flow questions that need to be looked at. Both strategies have significant risks where the house is the only asset -- particularly if there's not good cash flow and no long term care insurance.

Yes, you could do a transfer of the property into an irrevocable trust, but such trusts need to be carefully drafted to minimize capital gains hits in the event of a lifetime sale which allowing enough flexibility to pay for the cost of assisted living if needed. If either parent ever needs MassHealth to pay for long-term care coverage, rest assured that the agency will pick the trust apart. The transfer itself to either a life estate or a trust would be countable for 5 years. Keep in mind also that if the house goes to a life estate and is sold during your parents' lifetimes, the remaindermen -- you and your siblings -- would have a capital gains hit because you take the gift at your parents' basis and it is not your primary residence.

I've been practicing elder law since 1998. Please have your folks contact me if they would like to set up an appointment.