Retitling Assets- the Plusses and Minuses
When I speak at gatherings of seniors where assets are considered, one topic of constant interest is whether to title or to retitle assets, when to do it, how to do it, and whether this action avoids probate or taxes.
Retitling could be done into the names of parents and adult children jointly or exclusively into the name of adult children or parents and children could purchase property and then title it in the name of all of the parties as, for instance, when they plan to live together.
When seniors title their assets jointly with their adult children or grandchildren, they often view it as one way of transferring ownership to the next generation. This has its advantages and disadvantages. There is no “one size fits all”.
First, many people think that titling as Joint Tenants with Right of Survivorship (JTWROS) means that money will automatically go to their children when they die without taxes. It does go to their children but it is taxed. Probate and taxation are not the same. At best, the children receiving jointly titled assets may receive one-half without being subject to Pennsylvania state inheritance taxes. In order for this to work, the senior who makes the transfer must live for a year after adding the name to the account or all of it is pulled back into the estate. The rate on children and other lineal descendants (grandchildren) is 4.5%. The sibling rate is 12%. Nieces, nephews, cousins and the more distant relatives pay the same rate as unrelated parties, 15%. Federal estate tax does not have to be considered except in the higher brackets – think $3.5 million estate and above. On the other hand, one consideration is that, without retitling into joint name, all of the asset could be subject to tax.
Secondly, parents and adult children both may think that joint titling of assets may be one way to prevent nursing homes from considering all of the parent’s assets when application is made for government benefits. Actually, if the account was the parent’s initially, then adding an adult child’s name to the title when applying for skilled care does not help. Typically, all of the assets would continue to be considered available for payment of nursing home bills despite the fact that there is an additional name on the account.
A transfer of real estate into joint name where the adult child has not contributed to the purchase can create a serious penalty period when the parent needs but cannot qualify for Medicaid. Such a transfer should not be done lightly.
On the other hand, jointly purchasing a new residence where all of the parties will live and where they all contribute to the purchase price can be an excellent strategy in the right case. If titled as “joint tenants with right of survivorship,” the property is protected during the parent’s life as exempt from Medicaid and protected after her or his death because it is not probate property. This has to be done carefully to avoid penalties or uneven contributions and a family agreement should be prepared with the assistance of an elder law attorney.
Joint titling sometimes results in “lopsided” inheritances. Where there is more than one adult child, jointly titling a bank account with only one of them will likely mean that adult child co-owner will inherit all of it on death leaving the remaining brothers and sisters without an equal share unless the adult child who inherits then disclaims or shares her inheritance with the rest of the family.
Seniors should think long and hard before retitling their assets exclusively in the name of adult children.
Here are some potential scenarios.
- The Ingratitude Problem — Mom and Dad buy a house for son and daughter-in-law and title it in son and daughter-in-law’s name.. Dad dies and Mom has difficulty relating to daughter-in-law. Since there was no agreement what to do in this circumstance, and Mom does not have her name on the title, Mom might end up moving from her own house with no funds and no equity in a residence. It is not easy to start over.
- The Divorce or Creditor Problem. Suppose Son and Daughter-in-Law divorce or son is sued. The house that really belonged to Mom and Dad is now considered an available resource in a divorce or in a law suit. If you need help with child custody modification, then you can check it out here! You may also seek the services of a custody attorney or divorce lawyers to assist you.
The titling and retitling of assets is a very tricky act and should be done only with full understanding of the consequences. To be certain that this process is the best option for your particular circumstances, consult with a divorce attorney.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.