Day: August 4, 2017

Life Estates in Medicaid Planning

Often an elder law attorney will suggest that clients transfer their home to their children, retaining a "life estate." What does that mean, and what are the consequences of such an arrangement?

When a person signs a deed to their home to their children, the children immediately own the house and the parents no longer own any interest in the house. Thus, the parents are at the mercy of the children, who could legally boot them out of the house at any time.

"My children would never do that to us!" You say. Maybe not, but one of more of your children could be sued, divorced or go bankrupt in a bad business deal. Since the children now own the house and not you, those creditors could attach "your" house and force a sale, leaving you out on the street.

Often a better solution is to deed the house to the children but retain the right to live in the house for the rest of your life, so that your children only own it upon your death (or, if you're married, following the death Of the survivor of you and your spouse). Such a deed gives your children a "reminder interest" in the house, while you have retained a "life estate" in the house.

Since your children have no rights to the house during your lifetime, a divorce or lawsuit against a child can not have any impact on your continued right to use and possess your house.

Upon your death (or, if you're married, upon the death of the survivor of you and your spouse), the house is immediately and automatically owned by your children. No probate is required to transfer ownership to them at that point. As a matter of fact, even if your will attempted to leave the house to someone else, the will will be ignored, since you've already given the house to your children by way of the deed.

For Medicaid purposes, deeding a reminder interest to one or more children may have the beneficial effect of protecting it against "estate recovery," ie, the state's claim following your death for reimbursements of any Medicaid expenses it paid on your behalf during your lifetime. The rule in most states is that only assets in one's "probate estate" can be subject to estate recovery. So if the house passes automatically to the children outside of your probate estate at your death, then the state is out of luck.

If you deem your house to your children, and the house is worth $ 250,000, you just made a gift of $ 250,000 to the children when you signed the deed. However, if you deceived only a reminder to interest your children, then you have made a smaller gift. After all, you have retained the right to use and possess the house for the rest of your life; That has a value. The federal government publishes a table that shows the value of a life estate at ages from …

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