Estate Planning for unmarried couple

[Krinkov58]

My partner and I have been together for over 27 years and have one adult and one minor child...but we've never been married, and have no plans to. I'm kind of at the age where estate planning seems to be an appropriate idea. So, we live in a house which is under my name, but we pay a mortgage on it that I obtained through FHA (it's transferable). Would a revocable living trust be the best estate plan for us to avoid the mortgage's "due-on-sale" clause and bypass probate? I'm just looking for the best possible vehicle to transfer all of my assets to my partner were something to happen to me.

 

[Just Blue]

My partner and I have been together for over 27 years and have one adult and one minor child...but we've never been married, and have no plans to. I'm kind of at the age where estate planning seems to be an appropriate idea. So, we live in a house which is under my name, but we pay a mortgage on it that I obtained through FHA (it's transferable). Would a revocable living trust be the best estate plan for us to avoid the mortgage's "due-on-sale" clause and bypass probate? I'm just looking for the best possible vehicle to transfer all of my assets to my partner were something to happen to me.

What state?

 

[Krinkov58]

I'm sorry, I should have stated where we live...we live in Maine.

 

[adjusterjack]

Would a revocable living trust be the best estate plan for us to avoid the mortgage's "due-on-sale" clause and bypass probate?

An RLT would certainly avoid having to probate the house.

Transfers of real estate into an RLT are generally not sales but you would be wise to study your loan contract carefully to make sure that's the case.

 

[Taxing Matters]

Would a revocable living trust be the best estate plan for us to avoid the mortgage's "due-on-sale" clause and bypass probate? I'm just looking for the best possible vehicle to transfer all of my assets to my partner were something to happen to me.

What is best for you depends on the details of your situation, how old you are, what you expect your situation to be like in the years to come, and what your goals are. For that reason I recommend you see an estate planning attorney to go over that stuff in detail. The attorney can then outline your options and the benefits and drawbacks of each.

As for the home and the due on sale (transfer) clause that most home mortgages have, a federal law called the Garmin-St. Germain Depository Institutions Act of 1982 prevents a lender from enforcing the due on sale provision with respect to certain transfers. For the home, if the two of you own the home as joint tenants with a right of survivorship (JTWROS) then when when the first of the two of you die the home automatically becomes the sole property of the other without the need for probate. That is also a circumstance in which the lender will be unable to invoke the due on sale clause. So that might be the most simple way to achieve the particular goals you stated for the home. A revocable living trust might also work for that, too, but you have to be sure that the trust meets the requirements of the Garmin-St. Germain Act. There may be other ways to achieve it, too.

Note that it is not always a big deal for an estate to go through probate. In some states probate is neither terribly expensive or time consuming. Moreover, for many of the significant assets you have, like a home, car, and financial assets, you can arrange to have them pass outside probate without the need for a trust and just have a few things end up going through probate. So the particular details of your situation and how probate goes in your state matter. Again, talking with a local estate planning attorney will be the best way to sort out what will be the best plan to suit your needs.

 

[Krinkov58]

Thank you for these replies...I had forgotten to specify that this is an assumable FHA-insured mortgage. I've read that these mortgages do not subject the assumer to creditworthiness review "if the homeowner dies and gifts the home to an heir".
Is there any way to structure an inheritance in a way that would not affect an heir's eligibility for subsidized health care, or similar assistance? I'm vaguely aware that a living trust is treated differently than an irrevocable trust when it comes to how the trust's assets are viewed in respect to availability to the beneficiary.

 

[adjusterjack]

If you are referring to Medicaid read this:

https://aspe.hhs.gov/basic-report/medicaid-treatment-home-determining-eligibility-and-repayment-long-term-care

 

[Krinkov58]

I was thinking about MaineCare which is state health insurance.

 

[doucar]

MaineCare is what Medicaid is called in Maine.

 

[Krinkov58]

MaineCare is what Medicaid is called in Maine.

So is everything applicable to Medicaid also applicable to MaineCare in regards to assets?

 

[Taxing Matters]

I'm vaguely aware that a living trust is treated differently than an irrevocable trust when it comes to how the trust's assets are viewed in respect to availability to the beneficiary.

I think it will help to understand what the terms "living trust" and "irrevocable trust" mean. A living trust, also called a inter vivos trust, simply refers to any trust that is created during the lifetime of the person who sets it up (the settlor or grantor). This is contrast to a testamentary trust which is created after the person dies, usually from trust terms specified in that person's will. All trusts are either living trusts or testamentary trusts. Both can have a wide variety of provisions, so the terms living trust and testamentary trust tells you nothing about what the trust actually does or what powers the settlor, trustee, or beneficiaries have with respect to the trust. You need to read the trust document to determine exactly what kind of trust you are dealing with.

The terms "revocable trust" and "irrevocable trust" tells you one thing about the trust: whether the settlor may revoke the trust after it is created. (Persons other than the settlor might have a power to revoke a trust, but that's very rare.) Obviously for the settlor to revoke the trust he or she must still be alive at the time to do it. As a result, you don't see revocable testamentary trusts. But you do see revocable living trusts. The revocable living trust is the most popular trust used today for estate planning. A living trust does not have to be revocable — it can be irrevocable, but irrevocable living trusts are today less common than the revocable living trust. Although the right of the settlor to revoke the trust is an important thing to know, once again a revocable living trust can have a wife variety of provisions, so the term revocable trust or revocable living trust doesn't tell you much about how the trust actually operates. You have to read the trust instrument to know exactly how the trust works.

This matters for Medicaid because how the trust functions matters a great deal as to what access the settlor or beneficiary has to the trust assets. In the case of a revocable living trust the assets of the trust are generally treated as though still owned by the settlor and thus counted when determining whether he or she qualifies for Medicaid. On the other hand, because the assets of a revocable living trust are still treated as though still owned by the settlor and because the law generally allows the state to reach those assets the creation of a living trust does not count as gift transfer by the settlor and thus does not trigger the 5 year look back period that a transfer to an irrevocable living trust would do.

Similarly, if you are the beneficiary of a trust created by someone else, the extent to which you have access to the trust assets will determine how those assets get counted when determining whether you qualify for Medicaid benefits.

This is just very general overview of the various terms people use with trusts and how they relate to Medicaid. There are a lot of details regarding how trusts get treated for Medicaid that I have not covered that are important to know if you are either a settlor or beneficiary of a trust and are anticipating qualifying for Medicaid. The important thing to know here is that the labels placed on the trust only tells you a very limited amount about the trust and you really have to look at the specific trust provisions to see how the trust works and look at the Medicaid rules to then figure out how that would impact qualifying for Medicaid. An elder law attorney would be a great person to consult about those Medicaid issues.

 

[Taxing Matters]

So is everything applicable to Medicaid also applicable to MaineCare in regards to assets?

Yes. Medicare is a joint federal and state program. The federal government sets up the basic framework and rules for it and provides most of the funding. The states then fill in some of their own rules and provide some of the funding. So each state has its own Medicaid program administered along with SSA, and lots of states like to give their Medicaid plans more friendly sounding names. In Maine's case, the Medicaid program is now known as MaineCare. Just know that because each state has slightly different programs you have to look at the program for your state to determine the exact rules that apply and what options are available to you.

 

[TrustUser]

i was under the impression that all rlts qualify, as far as the due on sale clause. the ones that dont qualify - is that a needle in a haystack, or is there really any sizable amount that do not qualify ? if so, please give an example of any typical rlt that would not qualify.

 

[Taxing Matters]

i was under the impression that all rlts qualify, as far as the due on sale clause. the ones that dont qualify - is that a needle in a haystack, or is there really any sizable amount that do not qualify ? if so, please give an example of any typical rlt that would not qualify.

What the applicable federal statute says regarding transfers to a trust is that the following transfer is exempt from enforcement of a due on sale clause:

(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;​

​

12 U.S.C.A. § 1701j-3(d)(8). Federal regulations formerly at 12 CFR 591.5(b)(1)(6) explains this provision as follows:

A transfer into an inter vivos trust in which the borrower is and remains the beneficiary and occupant of the property, unless, as a condition precedent to such transfer, the borrower refuses to provide the lender with reasonable means acceptable to the lender by which the lender will be assured of timely notice of any subsequent transfer of the beneficial interest or change in occupancy.​

​

So it is not the case that all transfers of a home to a living trust (revocable or otherwise) will qualify for the exemption. The transfer must meet the requirements specified in the statute and applicable regulations.

 

[Krinkov58]

What the applicable federal statute says regarding transfers to a trust is that the following transfer is exempt from enforcement of a due on sale clause:

(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;​

​

12 U.S.C.A. § 1701j-3(d)(8). Federal regulations formerly at 12 CFR 591.5(b)(1)(6) explains this provision as follows:

A transfer into an inter vivos trust in which the borrower is and remains the beneficiary and occupant of the property, unless, as a condition precedent to such transfer, the borrower refuses to provide the lender with reasonable means acceptable to the lender by which the lender will be assured of timely notice of any subsequent transfer of the beneficial interest or change in occupancy.​

​

So it is not the case that all transfers of a home to a living trust (revocable or otherwise) will qualify for the exemption. The transfer must meet the requirements specified in the statute and applicable regulations.

This is very thorough, thank you.