Garn-St. Germaine Act protects families against certain mortgage acceleration

Home mortgages typically have a mortgage acceleration clause, called a “due on sale” clause. This is a clause that says that the mortgage becomes due and payable if the property is sold or transferred to another individual without the lender’s prior written consent. There is a federal law that prevents lenders from applying that clause when the homeowner transfers their property to their spouse or children. It’s known as the Garn -St.Germaine Depository Institutions Act of 1982, which is in the U.S. Code of laws at 12 USC.1701j.

Section d. specifies the situations in which a lender may not enforce the due-on-sale clause. The exemptions that are most relevant for elder law and estate planning are these:

(d) Exemption of specified transfers or dispositions  …. (3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety; (4) the granting of a leasehold interest of three years or less not containing an option to purchase; (5) a transfer to a relative resulting from the death of a borrower; (6) a transfer where the spouse or children of the borrower become an owner of the property; (7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;  (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property …. “

There are times that transferring the ownership of residential property makes good sense for asset protection purposes. No transfer should be made without legal advice, as there are so many considerations to take into account. For example, can the new owner in the family pay the mortgage? if not, who will pay it, and is that person going to be making ongoing gifts to the new homeowner, or is there some other legal relationship at play? But it’s good to know that there is this protection available when there’s a mortgage on the property. Preferably, the Deed itself should make reference to the mortgage that’s on the property at time of transfer.

Call us for advice on asset preservation planning and real estate transfers … 732-382-6070

Protecting your family’s inheritance from their creditors

Perhaps you’ve heard friends talking about a “legacy trust” or a “family trust ” or a “bloodline trust.”  These are all names for the same basic concept. You may be at a point in your life that you feel that you do not need to retain the ownership of all of your assets because you feel that you really “have enough.” You feel that you want to leave a family legacy that might even be there for the grandchildren. So you wonder what is the best way to do this.

An outright gift transfer of assets will certainly provide a nice benefit for your children. Some people bypass their children and make transfers that are expressly just for the grandchildren. You can fund their education, help the grandchild with that first new car or their first home.  Either way, when transferring assets to children with the hope that the assets will be preserved and will grow for future family needs, though, you might consider the idea of protecting the assets against hazardous circumstances that could arise. These same principles apply when you are designing your Last Will and Testament.

The beauty of a trust for the family is that the assets can be protected. If enough safeguards are build into the trust structure, trust assets can be protected against creditors (“spendthrift”), they don’t get intermingled with the child’s own assets, and they may remain “off the table” in case of divorce or lawsuits. Also, the assets can be excluded from the child’s own estate at death. The family trust preserves assets for the family’s future while protecting against these all-too-common hazards.

There are many variations of trusts, and no one trust will be exactly right for everyone. They need to be customized for the particular family’s needs. And trusts can be built into your Last Will and Testament as well. The main idea is that sometimes, your goals of family protection might be better served with a trust than with an outright transfer, and you can explore these issues with your attorney.

Call us about senior estate planning and family legacy protection planning … 732-382-6070.

Medicaid penalty imposed when life tenant received no proceeds of the home sale

A “life estate” in property is an interest that has a quantifiable value. If ownership of property can be thought of as giving the owner a “bundle of rights,” the life estate is a partial ownership of that bundle. For instance, the owner of property has the right to sell it, improve it, demolish it, rent it, give away a partial interest, and reside in it.  The life tenant has the right to reside in the property and exclude other residents, and the right to receive the rent if s/he moves out. At sale, the owner of the life estate is entitled to a percentage of the proceeds based on their age at date of sale.

A new non-precedential appellate division case  called E.S. vs. DMAHS has confirmed this legal principle. E.S. transferred her property to her daughter in 2006 and reserved a life estate. Eventually, she moved into a nursing home. In 2013, Elaine and her daughter sold the property, but 100% of the proceeds were given to the daughter. When Elaine applied for Medicaid in 2014, this transfer of assets was captured by the 5-year look-back which is done at the time a Medicaid application is filed. As a result, a transfer penalty was imposed on Elaine, because $144,720 was the value of the life estate which was given away to the daughter. As a result, Medicaid would not pay the nursing home for approximately 14 months, creating obvious problems for Elaine. Elaine did try to provide evidence to rebut the presumption that the gift wasn’t exclusively for the purposes of hastening Medicaid eligibility, but that’s a different topic for another day.

The Medicaid transfer penalty rules are a minefield. When managing the assets for aging individuals and doing asset protection planning, you need to keep in mind the potential impact on Medicaid eligibility of any financial transaction you are thinking about, because the denial of Medicaid benefits could be catastrophic.

Call us for advice on Medicaid eligibility planning, trusts for family members, Medicaid applications and appeals … 732-382-6070