Ethan R. Okura
Hawai‘i Herald Columnist

For the last two months, this column has focused on children fighting over property when their parents die. We discussed the importance of communication. Especially if the inheritance going to the children will not be equal, it is best if the children know about it in advance so there are no surprises after the funeral. However, sometimes, communication is not enough.

As a person gets older, it is easier to be influenced by others. Some older people are so tough they are never easily influenced. However, many do become more easily influenced than when they were stronger. Often, a child who spends time with a parent can influence that parent. Perhaps the parent’s trust or will says that the property is to go to the children in equal shares. However, as the parent gets older and more feeble, one child gets the parent to sign legal papers giving the entire property to that child. Sometimes the parent does not even realize what the legal papers say. In other instances, the parent understands, but is convinced by the child that it is the best thing to do. Sometimes, the parent might be influenced back and forth by whichever child he or she is with at the time. We have seen situations like all of the above happen to clients before they came to see us.

Is there any way to avoid this kind of problem? One way is to set up your estate plan so that it cannot be changed. For example, you can use an irrevocable trust instead of a revocable trust. The words of an irrevocable trust cannot be changed. Once you put property into it, you have given it away. You cannot take it back. Most of us think that we are not ready to do this as long as we are healthy. However, there is one asset you can “give” to an irrevocable trust painlessly. That is your home.

If you know for sure whom you want your house to go to when you die, you can set up an irrevocable trust. The trust states who will get your house and lot upon your passing. You then transfer your house and lot to the trust. You can arrange to keep a long-term lease over your property until you pass away. The lease means that you can live in the house for the rest of your life; nobody can kick you out, but you can kick out anybody you want. If you rent out the house, you keep the rental income.

Here are some advantages to doing this. First, there will be no probate when you die. In this way, it is just as good as a revocable trust which avoids probate. Second, your real property taxes will not increase on account of giving away your home to a child who doesn’t live there. You still get your homeowner’s exemption and the extra exemption for age. Third, if you ever have to apply for Medicaid for nursing home costs, the transfer out of your name to the Irrevocable Trust makes sure that the home is not counted as your asset for Medicaid Qualification. Fourth, if you ever receive Medicaid help for nursing home costs, the house and lot will be safe, preventing the government from placing a Medicaid lien on it. Fifth, if the children sell the property after you pass away, they will probably pay much less in capital gains taxes than they would if you simply gave them the property directly. Finally, you can be sure that the house and lot will go to whomever you want. You made up your mind when you were strong enough to be sure of yourself. Even if your mind becomes weaker later, or if you become easily influenced, no one can make you change the trust. 

But as an added benefit, just in case you really do change your mind about who should get the house while you’re still mentally competent, we can help you build extra flexibility into the trust that lets you change the percentage distributions among your children when you die, while still keeping the added protections from undue influence.

What are the disadvantages of this technique? Once you transfer the property to the irrevocable trust, you cannot sell or mortgage the property without the agreement of the trustee of the trust. (The trustee can be one child or all of your children.) Even if the trustee agrees to sell the property with you, you won’t get any of the money from the sale. The trust gets some, and you get some of the money. If you do not intend to sell or mortgage your property, then there should be no problems with this technique. It works!

Ethan R. Okura received his JD from Columbia University in 2002. He specializes in Estate Planning to protect assets from nursing-home costs, probate, estate taxes and creditors.

This column is for general information only and is not tax or legal advice. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate-planning specialist.

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