Should You Pay Off Your Home Equity Loan as An Estate Planning Method?

Given the new updates in tax laws that have occurred recently, many people are looking into different strategies that could help benefit them and their loved ones in the future. One common recommendation from accounts and other financial professionals is to consider paying off your home equity loan. 

Since you will no longer be able to deduct the interest payment on your home equity loan or line of credit, if you use the money for any purpose other than improving or buying the dwelling, this means that it is costing you more to keep this money directly on your balance sheet. This loan should only be viewed in consideration of the other debts that you currently owe and not the just the tax implications of it overall. Furthermore, paying off your home and fully owning the asset could make things easier in the event that you intend to pass this asset on to your loved ones.

Your beneficiaries may have less hurdles to jump through when the home was fully owned by you at the time that you pass away. You can then consider other estate planning methods for the remainder of your assets. Scheduling a time to speak with someone who has practiced in this field for years is extremely beneficial for a person who is contemplating the estate planning process.

“Mom, Can You Co-sign?”: Did a Family Member Participate in Your Loan?

Often, young adults ask other family members to participate in a loan to assist the young adult in purchasing his or her first home. As a recent article explains, this can become extraordinarily problematic at the family member’s death.

Even though the family member pays little or nothing towards the home, his or her name will usually be added to the title. This gives him or her an ownership interest in the home. If the family member’s estate leaves the home to those who actually paid for it, no problems will arise.

However, if the family member’s estate does not deal with the title, the homeowners may have a legal battle on their hands. In this situation, the decedent’s beneficiaries may fight to have the decedent’s portion of the home included in the estate. These battles especially arise if there is already animosity or distrust within the family.

To avoid this outcome, be sure to discuss it with the person who participated in your home loan. Ask them how their ownership interest is disposed of in their will. If this never happens and you are worried that you may become the target of such a lawsuit, be sure to keep documentation proving that the third party never paid anything towards the loan.

Considering Gifting Your Home? Read This Before You Give Away The Castle.

Many parents want to believe that their children would never kick them out of their own home. However, the sad reality is that this has been the subject of more than one lawsuit. As a recent article explains, if you are considering gifting your home to your child or children, it is important to consider that possibility and other consequences.

First, the gift of a home is often a taxable gift. If a parent signs a deed gifting the house to their children, he or she should file a gift tax return as well. If this gift tax return is not filed, the parent may lose the ability to claim an exemption from the gift tax and may owe taxes on the transaction.

Additionally, gifting a house to children allows them to sell the house out from under the parent. The children can attempt to send the parent to a nursing home or simply evict the parent altogether.

Finally, gifting a home can have serious implications as far as Medicaid is concerned. Medicaid is a need-based program that employs a look-back provision of five years. Therefore, if a home is gifted within the five year period before a parent applies for Medicaid, the value of the home is considered in the parent’s assets. Therefore, depending on the value of the home, the gift could make the parent ineligible for Medicaid benefits.

Often, the ideal scenario involves a system whereby the value of the home is gifted, but the parent is permitted to live in the home for as long as they like or for a certain period of time.  Parents should consider using a combination of life estates and proper trusts to achieve these goals.