Question about protecting home ownership.

[Paradox]

The wife and I are both signers on our home mortgage. The home will be paid for in about four years. Once the home is paid for, is there any way to put it in a trust so that if we accrue medical bills etc, the creditors cannot go after it.

I was thinking about putting it in a trust to my daughter, we plan on giving it to her when we die anyway. I just want to protect it while we are alive.

I know I will have to talk to a lawyer, hoping to get some basic info from you guys first. Thanks..

[Kadmos]

*Almost* every state has laws that protect "the marriage home" from creditors other than the bank holding the mortgage.

*Usually* the most a creditor can do is put a lien on the house which won't allow you to sell or refinance without paying off that bill.

What it sounds like you should do is add a TOD on the deed with the kids name on it. It's a Title On Death, all she needs to do then is show up with your death certificate and re-title the house in her name. It keeps it out of probate and helps keep creditors away from that property.

It's best to add a TOD to anything with a title (cars,boats) and a POD (pay on death) to any bank accounts, stocks, etc.

Just to be clear a TOD or a POD does not give the person any rights to the property while you are still alive, but as soon as you die they can switch it over easily.


*state to state laws are different, you should talk to a lawyer and get a will done.

But seriously just doing the TOD's and POD's will save her serious headaches and it doesn't usually take much more than a few phone calls to get it done.

[Mark Ducati]

YES... its called an "Irrevocable Life Insurance Trust".

We had our attorney draw an ILIT up for us when we had our wills made.

[JTHunter]

Paradox - Mark is correct. My mother and I just set up one for her with a registered financial advisor.
While it is possible to do it on your own, if you can find an advisor in your area that also has ties to an accountant to do your taxes and an attorney that specializes in financial matters (trusts, insurance, etc.) as well as "elder law", that would be your best bet.
Good luck!

[mriddick]

Does anyone have an ethical problem with people getting out of paying their bills with matters like this?

[Mark Ducati]

Oh... I forgot to mention THE most singular important reason for having an ILIT!!!!!

When I die... my family gets a hefty chunk of money from my term life insurance policy... ALL that money goes into an ILIT, and it is NON-TAXABLE!!!!!

Whatever the designated "director" of "custodian" of my estate's trust deems necessary to purchase for the trust (cars/house/etc...) It is NOT taxable income. Sometimes I buy a raffle ticket from the National Corvette Museum... if I won an $80,000 Z06, that would be considered $80,000 of additional income that I would have to pay to the government... if my wife (director of my trust) wanted to buy a new $80,000 Mercedes... she'd pay sales tax at the stealership, but that would not be considered income for her.... she doesn't own the car, the "trust" does.

Your home can still be forclosed on, and your car can be repossessed if you default on those loans... but in the case of a hospital bill, they cannot take your home if you have an ILIT. I have no problems with defaulting on a hospital bill, taking your home would put a true hardship on your family... and would society be best served by making your wife and kids homeless? I look at it like this, we have a responsibility to take care of those less fortunate... sometimes you have to take one for the team. I often perform dental services free of charge for those who really need it... the hospitals can do the same too, they're just on a larger scale than my small office. If something happens to you, the Credit Card companies cannot touch your estate either... I also have no problems with this, they've been sticking it to us for decades!

[mriddick]

Be careful some really smart people around here have told me the rich can't use trusts can't dodge taxes like that (even though my grandkids are doing exactly that).

[Mark Ducati]

mrridick, I'm sure there's a lot of stipulations regarding this... but the truth is, all of this is in black and white and we are acting within the printed letter of the law. No loop holes, no gray area... it is black and white and that simple.

[mriddick]

mrridick, I'm sure there's a lot of stipulations regarding this... but the truth is, all of this is in black and white and we are acting within the printed letter of the law. No loop holes, no gray area... it is black and white and that simple.

I never claimed any of it was illegal. I think there are some ethical questions it raises and maybe shows why we as a nation are having the problems we are but illegal, I never even came close to saying that.

If you're talking about my comment about the rich dodging taxes, not too long ago I stated something about the rich dodging taxes by the use of trusts (thinking of what I know has been done with my grandkids) and was flatly told by some that was impossable... :) You and I probably know otherwise but in some people's minds it can't be done.

[Richard Simmons]

Does anyone have an ethical problem with people getting out of paying their bills with matters like this?

Was thinking the same thing. For some reasons (probably due to the fact that a lot of folks see medical bills as grossly inflated and or medical care as a right) medical debt isn't held in the same regard as other debt. If we were talking about getting out of a student loan or car payment I believe attitudes would be different.

IMHO a debt is a debt and repayment can not be based on the "desire" to repay. That's why we have things like life insurance, health insurance, disability insurance and savings.

[sevlex]

You can also look at whether your state has a "Homesteading" law.

[mriddick]

Was thinking the same thing. For some reasons (probably due to the fact that a lot of folks see medical bills as grossly inflated and or medical care as a right) medical debt isn't held in the same regard as other debt. If we were talking about getting out of a student loan or car payment I believe attitudes would be different.

IMHO a debt is a debt and repayment can not be based on the "desire" to repay. That's why we have things like life insurance, health insurance, disability insurance and savings.
I think some of it is that medical bills are one bill you really have no way of planning for ahead of time. Unlike cars where you can get a estimate and know the total costs ahead of time medical bills have a way of adding past what anyone can plan (save) for. I've known people who've gone in for a stress test they think is going to cost them a $200 deductable and end up with a couple hundred thousand dollar bill.

Still though if it's a good idea for those who can afford to file the right papers with the right lawyers ahead of time then it ought to be automatic for the rest of the population. The question should be when a person dies does their debt die with them regardless of how it's acquired? That I believe could cause quite abit of trouble if practiced across the board...

I believe we are getting to a point where no one no matter how much you save and plan can do so for every medical situation that could possibly come up. You could literally do everything right your entire life and still due so some unseen hospital bill end up broke and losing it all at the very end. This is why in some ways I think nationalized healthcare holds some merit (this is not support for obamacare but rather I could see some sort of limiting British plan to keep costs in check).

[Viking350]

Be careful some really smart people around here have told me the rich can't use trusts can't dodge taxes like that (even though my grandkids are doing exactly that).

Trusts can be used to avoid estate taxes, but generally don't allow you to avoid income taxes. Here is a link.

http://www.ehow.com/how_5002770_use-trust-avoid-income-taxes.html

[mriddick]

Trusts can be used to avoid estate taxes, but generally don't allow you to avoid income taxes. Here is a link.

http://www.ehow.com/how_5002770_use-trust-avoid-income-taxes.html

Not to the person who earns the money in the trust, but those who recieve it a good case could be made they probably do (if you count what the trusts delivers in terms of income).

[binky59]

The wife and I are both signers on our home mortgage. The home will be paid for in about four years. Once the home is paid for, is there any way to put it in a trust so that if we accrue medical bills etc, the creditors cannot go after it.

I was thinking about putting it in a trust to my daughter, we plan on giving it to her when we die anyway. I just want to protect it while we are alive.

I know I will have to talk to a lawyer, hoping to get some basic info from you guys first. Thanks..

Check out your states homestead act, my understanding is that as long as the house stays in the family, nobody can touch it.

[Viking350]

Not to the person who earns the money in the trust, but those who recieve it a good case could be made they probably do (if you count what the trusts delivers in terms of income).

You lost me there.

[mriddick]

You lost me there.

Read Marks post about his trust getting a huge chunk of money that is not paid tax on. I might not have the ability to put in the correct legalese but the way I understand it a trust can own everything allowing a very high standard of living while the participants pay tax only on the spending money they might withdraw at a much lower rate.

[Viking350]

Read Marks post about his trust getting a huge chunk of money that is not paid tax on. I might not have the ability to put in the correct legalese but the way I understand it trust can own everything allowing a very high standard of living while the participants pay tax only on the spending money they might withdraw at a much lower rate.

If you are referring to his post about when he dies proceeds from life insurance are not taxable income to the beneficiary, whether it goes through a trust or not. Here is the link to the IRS page.

http://www.irs.gov/faqs/faq/0,,id=199751,00.html

A trust is a legal entity that must pay taxes on its' income. I already put a link on here that stated as much. Here is another link to an CPA's page if that makes a difference.

http://kaufmann-cpa.com/FAQ/trusts_faq.html

[mriddick]

Yes it's my understanding the trust pays taxes on what ever it earns in interest and dividends as well.

[Viking350]

Yes it's my understanding the trust pays taxes on what ever it earns in interest and dividends as well.

Then I'm fuzzy on how they save you taxes, other than potentially estate taxes.