This week I’m sharing a blog on Medicaid from Dave Zumpano, who focuses in Medicaid planning. I’ll be sharing Medicaid blogs from Dave Zumpano monthly in this space.
Now, here’s Dave’s blog:
Blog Author: David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center
As an estate planning attorney for 23 years, I cannot count the number of times I have been saddened and frustrated by clients who have given their assets away to their kids to protect them. This advice was inadvertently given from a general practitioner attorney (or sometimes self-professed estate planning attorneys) who convinced the client it was a much “simpler approach” to protect assets. Those of us in the estate planning world know nothing can be further from the truth.
Transferring assets to children has many high risks that clients aren’t familiar with. Most commonly, it can create a gift tax filing requirement that is rarely done and results in a “carryover” tax basis to the beneficiary who receives the gift. Many of these general practitioners fluff it off because they may have reserved a life estate for mom and dad, to preserve or step up in basis on the home. While they may be correct on the step up in basis issue, what they have failed to consider is, what is the impact of conveying the house to four kids is after the death of Mom and Dad? Imagine trying to sell that house and getting the four kids to agree on the price and to even agree whether it’s sold or not.
More complex yet, is imagine one of those four kids dies, becomes disabled, ends up in a nursing home, gets divorced, get sued, or goes bankrupt? In all of those scenarios the “simplicity” of just transferring the house to the kids is no longer simple and no longer cheap.
Other challenges occur if the asset is not the home, but rather other assets that Mom and Dad need to live on. Transferring needed assets to the children now puts all of Mom and Dad’s lifetime of assets and security in the hands of their children. Assuming the children are “good kids” and continue to allow the parents access to those assets is a far cry to begin with, but even if the children were cooperative, the children are still subject to claims they have no control over such as lawsuits, their own poor health, their own death, or a divorce. Imagine the child the assets were transferred to who dies of cancer or a car accident and now Mom and Dad’s assets are owned or controlled by the “daughter-in-law”.
Obviously lawyers who just routinely transfer assets to another party have not considered the significant disadvantages and more importantly risks to the client. So what are we to do about it?
The first and most important thing for us to do is to continue to educate by blogging, delivering presentations, workshops, seminars, and other ways to be the proper educators of the public and always professionals as to the pitfalls of transferring assets to children. The second and more important thing is to perhaps educate our fellow attorneys by sending newsletters, or even committing to doing a CLE at your local bar association. Don’t take this lying down, clients need our support. Get involved and protect clients by ensuring their assets are not transferred out of their control during their lifetime!
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
- The Magic of Grantor Trusts - September 19, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - August 15, 2023
- Double Your Gifting with Spousal Gift-Splitting - January 11, 2022