At this time of year, many of my clients tell me of their vacation plans. Some of them have a vacation home or cabin. Occasionally, these properties are out of state, in places like Rehoboth Beach, the Eastern Shore of Virginia, or perhaps even farther south, such as South Carolina or Florida. In other cases, the vacation homes are here in Pennsylvania. They could be a river lot or a cabin along the creek.
In either event, these clients have a valuable and cherished secondary property that they wish family members to enjoy in the future. They need to be aware that there is estate and asset protection planning that should be done to protect these properties.
The first concern I raise with my clients is the availability of these secondary properties in the event they need long-term care. Long-term care is typically the type of care provided in a nursing home. The Medical Assistance program can pay for nursing home care provided you qualify financially. Many of the assets owned by the applicant are considered “countable” or available to pay for their care. They may make the owner or their spouse ineligible for Medical Assistance.
One of the assets that can make a person ineligible for Medical Assistance is a secondary property such as a vacation home. Vacation homes can be difficult to liquidate when the owner needs to qualify for Medical Assistance. In addition, most of my clients don’t want to sell their vacation home, whether it is a place by the shore or alongside the creek.
The second concern I raise with my clients is the need for probate if the vacation home is located in another state. Probate is the process of distributing an asset to beneficiaries after the death of an owner. Each state has its own probate process. Probate in some states can be more be more difficult than others. In addition, it is very frustrating to have to probate not only in Pennsylvania but in a second state where the vacation property is located, such as Virginia or South Carolina.
A common estate planning solution to these concerns is the use of a trust. The vacation home can be transferred into the trust, and the terms of the trust will distribute the property to beneficiaries at the death of the owners, thus avoiding probate. Trusts can be either revocable or irrevocable. The revocable trusts allow you to revoke the trust and return the assets to you at any time.
Irrevocable trusts are typically used for asset protection purposes. With the use of an irrevocable trust, you can not only avoid probate, but you can shelter assets from being countable in the event you need to apply for Medical Assistance in the future. Keep in mind that the Medical Assistance rules do have a five (5) year look back. Any transfer to an irrevocable trust would not be sheltered if the client needs to apply for assistance within that five-year look back period.
As you are enjoying that vacation property this summer, you may want to consider some estate planning or asset protection planning to ensure that the family vacation home is passed onto the next generation.
Matthew J. Parker, Esq. is an attorney at the law firm of Marshall, Parker & Weber, LLC with offices in Williamsport, Jersey Shore, and Plains. For more information visit www.paelderlaw.com or call 1-800-401-4552.