Probate Property and Bankruptcy
February 10th, 2010
Transferring property in a probate can cause a variety of problems for the parent. First, unless done gradually over a period of years, the parent may incur estate tax liability. Second, if the parent needs to apply for Medicaid to pay for nursing home care, the transfer may disqualify the parent from receiving benefits. Third, the transfer may expose the parent to claims of the child’s creditors or bankruptcy trustee if the child experiences financial difficulty or files Bankruptcy. Because the child has a legal interest in the home, that interest will have to be disclosed in the bankruptcy paperwork. I call this “bare legal title.” The debtor child has no true interest in the property; mom’s the real owner. Mom paid the down payment, pays the monthly mortgage payments, taxes, maintenance, and all other costs associated with the home. Mom put Junior’s name on the deed simply so that when she passes away, Junior will become the owner of the property without the need for probate.
Entry Filed under: Business