May 26, 2009
How have these difficult economic times affected senior citizens?
Because of Estate Recovery, it is very common for seniors to deed their homes to a child while continuing to reside there rent free. What happens if that child files for bankruptcy? The bankruptcy trustee is likely to either charge Mom and Dad rent, or evict them so that the property can be rented out to produce income for the creditors.
Why can't the child deed a life estate back to the parents when he foresees the likelihood of bankruptcy? If he does so within one year of filing for bankruptcy the transfer is considered a preferential transfer for the benefit of a preferred creditor. The bankruptcy trustee can step into Mom and Dad's shoes and take over the life estate.
Life estates also subject the property to Estate Recovery. While property law recognizes that a life estate expires on the holder's death and has no value thereafter, the Georgia Estate Recovery Regulations say that the value of the Life Estate immediately prior to death is included in the decedent's estate for Estate Recovery purposes.
So what do you do? First and foremost be very careful to whom you give your assets. If you are concerned about your child going bankrupt, getting divorced, being sued, or owing the IRS taxes, perhaps you would be better off hanging on to your property rather than transferring it to him.
If you do transfer your homeplace to your child, how about getting a lifetime lease at the time of the gift which allows you to occupy the premises for free as long as you choose to? It may help in bankruptcy without harming you in Estate Recovery. If any of you have any experience with this approach I would love to hear from you.
Thanks for Joe Hammill, Esq. of Brunswick, for suggesting this topic.
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