Attorney Thomas B. Burton answers the following question: "How Do I Protect Our Family Vacation Home From Divorce and Medical Costs?" Attorney Burton discusses how death, divorce and medical costs can hinder passing the family vacation home on to the next generation without the right estate plan in place.
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Hello, I'm Attorney Thomas Burton. I'm an estate planning and asset protection attorney here in Wisconsin and today's question comes from Appleton, Wisconsin and the viewer asked the following:
"How do I protect our family vacation home? I have MS. With the uncertainties surrounding MS, our plan is to pass our vacation property to our kids but don't want to potentially lose it to medical costs. They are both getting married this fall. Can this be done before getting married as we live in Wisconsin?"
Great question and it's important and a good idea for you to think about this before your kids get married because as you know in Wisconsin, once you get married, we have marital property law and once someone's legally married, the other spouse owns an undivided, one-half interest in their future income and earnings.
Now the one good exception to this is inherited property can remain individual property, separate. So if you should pass just after the wedding, your child could inherit the vacation home but what they would want to do is make sure to keep it segregated and that's where a lot of people fail and if they mix that individual property with marital property, it could risk becoming marital. So for the vacation home, it's an important part of many Wisconsin families lives and legacies and often what I recommend is a trust is a good vehicle for holding the home and you can set this trust up to protect it from things like creditors and divorce, just in case one of your children does get married and it doesn't work out later. You can also have it hold the asset for the benefit of your children and pass it to them upon your death, so they get the most favorable tax treatment on the property. Many vacation homes appreciate significantly and so you want to often pass it at death, so your children get that stepped-up basis and you can also build in protections against divorce inside the trust.
There's different types of trusts. There's revocable which is changeable but for the asset protection, you might want to look at an irrevocable trust and if you're young enough and you have five years to get past through the look-back period, it can also help you with Medicaid asset protection planning from the nursing home because I know you mentioned medical costs.
So for this to be effective, you need to do this type of planning five years in ahead, so I probably would recommend you look at an irrevocable asset protection trust, put the family vacation home in there. Since you own it, I would try to get it in there before they get married but even if they are married, if the children are not on the deed at all, you can still do it after they're married and get the asset protect, the asset protected inside the asset protection trust.
So great question about the family vacation property and if you're interested in learning more about how these type of trusts work, I've got a free five-step guide, it's how to protect your home from the nursing home but it also applies to a vacation home. I'll put the link in this video and then I have the other type of trust which I would not necessarily use for this but discuss with your attorney your concerns about the asset protection but would be a regular revocable living trust and there could be a way to do some of this planning with that. I've got a guide on that. My will versus trust guide, you could check that out as well but in your situation mentioning the medical costs, the worries about I think divorce and other things, I would recommend the Medicaid asset protection trust and that's the one we want to set up ahead of time for the Medicaid protection but as soon as you set it up, it would be effective in terms of the divorce protection for your children.
So great question and thank you for asking.
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