How to Keep Your Car Out of Probate in North Carolina

How to Keep Your Car Out of Probate in North Carolina

In North Carolina, it’s best to keep car ownership in one name only for liability reasons.  Although it may seem natural for couples to own a car jointly, if that vehicle is involved in an accident, the injured person’s attorney can sue both an at-fault driver and all owners of the car.  When a couple instead owns their vehicles only in their own names, an at-fault driver does not imperil his spouse’s separate assets.  Thus couples who own their cars separately can decrease their liability risk by up to 50% or more, depending on how financial assets are distributed between the couple.

Regarding probate, there are two main ways of keeping a car transfer out of probate court following a death, which in some cases can tie up or prevent use of the car for some time following the individual owner’s (or first-to-die of a joint owner’s) death:

  • Revocable trust.  Placing a car in a trust owner’s single revocable trust can keep it out of probate, because a revocable trust has its own lifetime which transcends the car owner’s death.  I do not recommend placing a car into a couple’s joint revocable trust, however, because this unnecessarily expands the liability of an individual car driver so that it imperils the joint financial assets of both members of the couple.
  • JTWROS.  Not everyone chooses trusts as part of their estate planning.  For couples or others who prefer to own their car jointly, they can own their car jointly in North Carolina with a right of survivorship (JTWROS, or JWROS), so that it will pass directly from one to the other party outside of probate at the first death.

Why is the JTWROS designation important for jointly-owned vehicles in North Carolina?

Even given the increased liability risk, some people prefer to own their car jointly.  Normally in North Carolina, when a couple of any kind jointly purchases a car at a dealer and does not give the dealer specific instructions about how they want the car owned, the dealer will fill out the paperwork in a way that translates into tenancy-in-common ownership on the car title.  This means that each member of the couple will own a 50% undivided interest in the car (which is, unlike land, and undividable asset) with no survivorship rights.   This can produce undesirable results.

The JTWROS Title

In order for the survivor of any couple, including a married couple, to inherit a jointly owned car in North Carolina (not held in a trust) outside of probate, the joint owners must explicitly tell the dealer that they want the car owned as joint with right of survivorship, or JTWROS.  They also must insure that the letters “JTWROS” or “JWROS” appear on the car title itself.  Without JTWROS on the car title, there is no right of survivorship held by the surviving owner.

It is important to specifically check the car title for the JTWROS designation, because many DMV workers do not understand the JTWROS designation, or do not know that JTWROS ownership of vehicles is permitted in North Carolina.

The JTWROS designation on the car title will insure that if one of the joint car owners dies, the remaining living owner will then receive full ownership of the car (except for any portion owned by the lender) in an automatic out-of-probate transfer.

How To Use A Medicaid-Compliant Annuity To Qualify An Ill Spouse For Medicaid

How To Use A Medicaid-Compliant Annuity To Qualify An Ill Spouse For Medicaid

Medicaid pays for 63% of all long-term care in the United States.  Long-term care, particularly memory or other specialized care, may cost in excess of $5,000.00/month.  Because many seniors cannot afford such expenses over the long term, Medicaid may need to be utilized to pay the senior’s long-term care bills.

Where there is one spouse within a senior couple who needs long-term care, and where Medicaid will be required to finance these expenses, an elder law attorney may utilize Medicaid planning techniques to help the couple preserve as many assets as possible.  Incorporating a Medicaid-compliant (or Medicaid-qualified) annuity may help the ill spouse to qualify for Medicaid, while preserving assets for the well (community) spouse.

WHAT IS A MEDICAID-COMPLIANT ANNUITY?

When a person purchases an annuity, he or she invests a principal amount in exchange for a stream of future payments (normally with interest) which is returned to the investor.

The most important feature of a Medicaid-compliant or Medicaid-qualified annuity is that once the principal investment is made, Medicaid no longer counts the stream of future payments received back by the investor as Medicaid “countable assets.”  Thus, previously countable Medicaid assets may be shielded from Medicaid by converting them to a future income stream emanating from a Medicaid-compliant annuity.

USE OF A MEDICAID-COMPLIANT ANNUITY BY A MARRIED COUPLE IN QUALIFYING THE ILL SPOUSE FOR MEDICAID

Medicaid-qualified annuities are most useful where an ill spouse needs to qualify for a nursing home (or other long-term care facility), and the well spouse (community spouse) desires to stay at home.

Suppose an ill spouse, who cannot have more than $2,000 in assets to qualify for Medicaid, is $100,000 over resource (or has $100,000 too many liquid assets to qualify for Medicaid.)

Because the ill spouse can transfer an unlimited amount to the community (well) spouse, he transfers the $100,000 to his wife.  If the $100,000 was still in excess of the wife’s Medicaid community spouse resource allowance (CSRA), the wife can purchase a $100,000 Medicaid-compliant annuity to immediately transfer the wife’s countable $100,000 asset into a stream of Medicaid-exempt income payments.

Income is counted by Medicaid only if payable to the Medicaid applicant.  Income to the community spouse is specifically excluded by Medicaid, thus the community spouse is allowed to keep all income payable to the community spouse.  The husband’s $100,000 countable asset has been transferred by the $100,000 Medicaid-compliant annuity into an exempt source of monthly income payments for the community spouse.  Her ill husband now qualifies for Medicaid.

Once the Medicaid applicant qualifies for Medicaid, the Medicaid beneficiary must only show on an ongoing basis that he does not have $2,000 in assets.  So even though the community spouse receives a monthly annuity check that could accumulate into an asset if saved, the value of the assets in the name of the community spouse is no longer a concern of Medicaid.

CHARACTERISTICS OF A MEDICAID-QUALIFIED ANNUITY

Medicaid-qualified annuities must have the following attributes:

  • Category: A single-premium immediate annuity (SPIA).  The premium is paid for in a lump-sum premium payment and the annuity immediately begins paying back the premium to the owner/annuitant.
  • Sold by company or bank in the business of selling annuities.
  • Irrevocable: The annuity is irrevocable and cannot be assigned to another party.
  • Life expectancy payout required: The annuity payments must be completed before the end of the annuitant’s life expectancy.
  • Equal Payments: The annuity payments must be equal throughout the annuity’s payment period with no deferral or balloon payments.
  • Medicaid named as primary or contingent beneficiary: The State of North Carolina’s Medicaid program must be named primary beneficiary, unless  the following persons are named primary beneficiary, in which case Medicaid is named contingent beneficiary:
    • The community spouse (spouse at home);
    • A child under 21; or
    • A disabled child of any age.

When properly used, a Medicaid annuity may help a Medicaid applicant preserve valuable assets for his or her family.

Saving The Senior’s Home From Medical Creditors

Saving The Senior’s Home From Medical Creditors

Almost everyone realizes that medical care at the end of life can be incredibly expensive. Even though Medicare and private insurance may be available, the unreimbursed cost of hospital stays, medicines, and institutional care, including nursing home care, may be unaffordable for the senior or his family. Because of this, Medicaid, a federal poverty support program, remains the largest payer of long-term medical care expenses in the United States, paying 62% of the nation’s long-term medical care costs.

MEDICAID ESTATE RECOVERY

Many believe Medicaid to be another health insurance program like Medicare, but it is not. When a senior uses Medicaid to pay his care bills, Medicaid counts and records every dollar spent on the Medicaid recipient. Following the Medicaid recipient’s death, Medicare will place a lien on the recipient’s estate for every dollar Medicaid spent during life, through a program called Medicaid Estate Recovery.

The estate’s Medicaid bill can be tens of thousands of dollars. Because the home is frequently the most valuable asset left in a senior’s estate, and because the probate process requires an estate to pay all valid estate bills before distributing remaining assets to the deceased senior’s beneficiaries, the home must often be sold to pay off estate creditors. If the senior intended to pass down the home to a loved one following his death, Medicaid Estate Recovery can prevent the home from reaching that loved one.

Medicaid Estate Recovery is prohibited if the deceased Medicaid recipient is survived by a blind or disabled child of any age, a child under age 21, or is survived by a spouse. But Medicaid Estate Recovery can continue once the spouse has died.

PROTECTING THE HOME FROM MEDICAID ESTATE RECOVERY

Medicaid laws are complex. During life, a senior’s home is normally not a “countable asset” if the senior is trying to qualify for Medicaid, as long as the senior has the “intent to return” to his home even while he resides in managed care or a nursing home, or as long as his spouse or other dependent relatives live in the home. But even though the home is not a countable asset when qualifying for Medicaid, it can still be attached by Medicaid Estate Recovery after the senior dies, as discussed above.

The JTWROS Deed

At this time, the North Carolina Medicaid Estate Recovery rules provide that real property which passes directly to heirs outside of probate is not subject to being attached in a Medicaid Estate Recovery proceeding. An elder law attorney can utilize this rule by retitling the real property containing the senior’s primary residence as “joint with the right of survivorship”, or JTWROS. A small percentage of the real property (frequently 1%) is sold to a beneficiary, such as a child (with the largest percentage ownership of the real property, frequently 99%, retained by the senior) so that the real property will now be owned jointly by tenants-in-common. Real property owned by tenants-in-common is not a countable asset when qualifying for Medicaid.

To keep the now jointly-owned primary residence out of the senior’s probate estate following his death, the “right of survivorship” is added to the deed. Now, just like a jointly owned bank account with survivorship rights, the senior’s ownership percentage (99% for example) automatically transfers to the minority (1% for example) beneficiary (frequently the senior’s child/children) at his death, so that the beneficiaries now own 100%. This becomes an out-of-probate transfer directly to the senior’s beneficiaries, which currently escapes Medicaid Estate Recovery under North Carolina’s Medicaid rules. The home passes to the senior’s beneficiary(ies) without Medicaid being able to use it to repay Medicaid costs.

Another positive result is that the senior’s heirs will not have to pay taxes on any appreciation of the home during the senior’s life. Because the home will be includable in the senior’s gross estate for federal estate tax purposes, the tax basis will be reset to the market value of the property at the senior’s death, thereby potentially saving the senior’s heirs thousands of dollars in capital gains taxes.

The JTWROS procedure may not work properly if a mortgage remains on the senior’s home. If it does, the sale of a minority percentage of the property to the senior’s beneficiary(ies) may trigger the bank loan’s “due on sale” clause, making the balance of the loan immediately due. For this reason, any bank loan attached to the senior’s primary residence typically must be paid off before the elder law attorney can set up a JTWROS conveyance.

Because family relationships can be more complex than what can be captured on a JTWROS deed, in addition to the JTWROS deed, the elder lawyer may create a real estate contract to be signed by the involved family members to better clarify the results of the JTWROS transfer.

Other Real Property

The JTWROS procedure may also be used to protect other tracts of real property owned by the senior from Medicaid Estate Recovery. In addition, because other real property may be a countable asset(s) when trying to qualify for Medicaid, converting such real property from single ownership to joint tenants-in-common ownership prior to applying for Medicaid can convert the property to a non-countable asset for Medicaid qualification purposes.

Even though the JTWROS deeding procedure works now in North Carolina to keep real property away from Medicaid Estate Recovery, the Medicaid rules could be changed in the future to prevent the technique from working.

GIFT TRANSFER OF THE HOME TO HEIRS WHILE RETAINING A LIFE ESTATE

The JTWROS procedure currently works to prevent Medicaid Estate Recovery, but it does not work in North Carolina to protect the senior’s home from other types of creditors during probate.

Even if a JTWROS property has passed to heirs directly outside of probate, North Carolina probate rules will allow the real property to be pulled back into the probate proceeding to be used to pay the estate debt to such non-Medicaid creditors as hospitals and county tax assessors, particularly if there are no other estate assets left to pay off such claims.

To shield the senior’s home from all estate creditors, the senior may gift the remainder interest in his home away to his beneficiaries during life, while retaining a life estate so that he may legally remain in his home during his lifetime. This assures that no future creditors, including medical creditors such as Medicaid, will be able to place a lien on his home following the conveyance, because the home will now not be available to pull back into the senior’s probate estate to pay debts following the senior’s death.

In addition to allowing the senior to continue to use his home during his lifetime, retaining the life estate allows the senior to include the home in his gross estate for federal estate tax purposes under Internal Revenue Code Section 2036. His heirs will then receive a step up in (tax) basis, re-setting the tax basis of the property to its market value at the time of the senior’s death. Because the senior’s heirs will not have to pay capital gains taxes on the senior’s home appreciation during the senior’s lifetime, this can save the family thousands in capital gains taxes.

If the senior transfers his home to his heirs without including a life estate for himself, his heirs will have to pay capital gains taxes on all home appreciation from the time that the senior originally purchased the property forward.

The gift transfer while retaining a life estate technique is not appropriate for seniors who may need Medicaid within 5 years. If the senior attempts to qualify for Medicaid within five years of this transfer, Medicaid will require the senior to private pay (for example to a nursing home or managed care facility) the entire value of the house before Medicaid will provide any government dollars.

In some cases, the family may be able to give the house back to the senior to avoid this Medicaid problem, but family dynamics may make this an unsure result.

DO NOT WAIT TOO LONG TO CONVEY PROPERTY

The family should not wait too long to shield the senior’s home against creditors, including medical creditors. Under North Carolina law, such procedures such as the JTWROS transfer and the home gift transfer with the retention of a life estate work to protect against future creditors, but may not work to protect against current debts or creditors.

In addition, seniors could encounter sudden illness at any time which could make them mentally incompetent, and unable to sign the legal documents needed to protect their home from creditors.

CONCLUSION

It may frequently make good sense to use a JTWROS deed as insurance to shield a senior’s home from Medicaid Estate Recovery. Because a senior’s Medicaid bill can be so large, the JTWROS deed could help the family keep from losing the home to creditors in probate. Because the senior retains as much as 99% ownership in his home as part of a JTWROS conveyance, the senior retains control of his home and can use it like he always did. Thus, the JTWROS deed is a “low impact” asset preservation technique.

To guard against all future estate creditors, the senior may gift away the remainder interest in his home, and retain a life estate. This can work well when done early, but should not be done if the the senior will need Medicaid in less than five years.

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