Have you been to your cottage on the Cape recently? Or perhaps your place in Maine, or on the lake in New Hampshire, or the getaway in the Berkshires? Wasn’t it great to see your children and grandchildren, enjoying the warm summer days, the quiet nights, the times you will always remember? Have you thought about keeping that cottage in the family or talked with the children about what they want? Well, it’s time to stop talking and start planning. Otherwise, you may lose it by mistake.
I do a lot of work with elder couples who are worried about getting dementia or Alzheimer’s, needing a lot of care at home or in a nursing home, and having to qualify for MassHealth to get help to pay for their care. As I tell them, if one of them needs a lot of care, that spouse typically can qualify for MassHealth by simply transferring all assets to the other spouse, who can then buy an annuity with excess assets. There is no lookback period regarding transfers between spouses, so couples can delay these transfers if they want to.
The family cottage, though, is an exceptional asset. If you own a cottage, and one of you needs to qualify for MassHealth, the cottage will have to be sold. While the net proceeds from the sale of the cottage can then be transferred to the healthy spouse, the cottage itself cannot be transferred, because the healthy spouse would have too many assets for the other spouse to qualify. That’s a shame, especially if you have one of those cottages that is special, not just because of the view, but because of the irreplaceable memories with which it is filled. The cottage may be the one asset that you truly want to leave for your children and theirs.
So if you have a cottage and you want to keep it in the family, you need to do the planning at least five years before either of you needs to qualify for MassHealth. The simplest option, of course, is to transfer title to the children. However, if you do that, then every management decision regarding the cottage will have to be made with the unanimous consent of all of them and, legally, your decisions won’t matter. An option is to keep a life estate in the cottage, so that you keep control while you are alive. Another option, instead of transferring the cottage to your children directly, is to transfer title to a Trust and name one or more of your children as trustees who will then hold and manage the cottage. The Trust will contain rules designed to avoid tie votes and family discord. Each of these decisions may have income and estate tax consequences that you will want to carefully consider. After all, that “cottage” on the Cape may very well be worth more than your home.
The point is to get this figured out now, while you are still healthy. A good time to start the conversation may be around the picnic table at the cottage, with your kids, after you’ve had one of those unforgettable days that you, and they, will always remember.