I met with a couple today that was about to retire. They had about four different pieces of real estate. They owned property in Baton Rouge, Metairie, New Roads, and Shreveport. Real nice couple - two kids and four grandkids. Seemed to be a pretty normal family - and we don't see many "normal" families anymore.
They had two main concerns. First, they said they wanted to avoid probate. Second, they said they wanted to avoid losing everything they had if one or both of them had to go into a nursing home in the future.
We decided to postpone any Medicaid Planning. They were relatively young, but the big issue is that they had a significant sum in their 401(k) and IRAs. It's harder to protect IRA and 401(k) assets from nursing home expenses in Louisiana, because these assets are countable resources. To get a 401(k) account or IRA out of your name, you have to take the money out of the account and pay all of the income tax - this strategy did not make sense to any of us. In addition, the husband already owned a long term care insurance policy so they had "some" protection in place from long term care expenses.
Regarding their desire to avoid probate, we discussed setting up their revocable living trust so that the following would happen:
- The couple would stay in control of everything while they were alive and able;
- The surviving spouse would stay in control after one spouse died, with no Succession or probate court proceedings necessary after one spouse dies;
- The two children would be the co-trustees of the trust after both parents die, with the immediate authority to sell the trust property and divide remaining assets between the two of them - all without the necessity of a probate or Succession proceeding.
Another issue that came up was whether they would put their Metairie property in their trust now. He mentioned they would sell this property in the next few months. They ultimately decided to keep their Metairie property in their name and they will expedite the sale of the property. Just to be safe though, we could have transferred their Metairie property to their trust (just in case they pass away before the property is sold). and then it would be easy for them to sell their property as trustees of their trust.
Finally, we talked about how easy it would be to sell their home (that will be in their trust) if they decide later in life that they want to sell their home and move to another location. We discussed how they could sell their existing home, and then acquire a new home in the name of the trust - all easy to do.
Their decision to keep their property out of their revocable living trust may have been different if they were trying to protect the property form nursing home expenses. If we were setting up the kind of trust that would protect their assets from future nursing home expenses, then it would be important to transfer all of the property now - to start the five year look-back period. Then, if they sell the property in trust in a few months, the sale proceeds would be deposited in a trust account, but the 5 year penalty period would have started when they initially transferred the property to the trust, not later when the property is sold.