A particular type of Life Estate Deed can be an important tool in estate planning and Medicaid eligibility. The titling of property is a large component of your estate planning which should be discussed when meeting with an attorney. Often, your primary home is the first to be examined.
How do you currently hold title to your house? There are a number of different ways to hold title to your home and these are often confused with one another. The first question to ask is, do I own my home along with anyone else? If the answer is no, then you are likely a sole owner. If the answer is yes, things get a little more confusing. The most common form of ownership with another person is when spouses own property together. In this situation, the form of ownership is most often tenants by the entireties. Tenants by the entireties means that when one spouse dies the other spouse becomes the sole owner. You can also own property with someone else as joint tenants with right of survivorship. This type of ownership means that the survivor of the owners becomes the sole owner upon the death of the other owner. You can also hold property as tenants in common. This form of ownership means that when one of the owners dies, their share passes to their heirs, who then become owners with the survivor.
If this all sounds convoluted, it can be. It is important to know how you hold title to your property. This is crucial information for your estate planning attorney because knowing how assets are titled can guide your planning in the direction that you want it to go. Now that we have introduced the most common ways to hold title, let’s examine a more unique option and explore how this option can help both with estate planning and for Medicaid.
A life estate deed is a type of deed that allows you to transfer ownership of real estate to yourself for life, and then upon death to someone else, who is called the remainderman. There are two types of life estate deeds: life estate deeds with powers and without powers. A life estate deed with powers means that you transfer the property to yourself for life, but retain full power to sell, convey, mortgage, or transfer the property. A life estate deed without powers means that you transfer the property for yourself for life, but cannot sell, convey, mortgage, or transfer the property.
The effect of a life estate deed on your planning is twofold. First, it helps to avoid probate. The remainderman automatically takes title upon your death, therefore eliminating the need for the court supervised process of probate. Second, a life estate deed can be a valuable tool for Medicaid planning.
By creating a life estate deed without powers, you not only avoid probate, but you have now made that piece of real property non-countable for Medicaid purposes. In other words, if you transfer your property to yourself for life without the power to sell, convey, mortgage or otherwise transfer the property, Medicaid cannot count your home as a resource when making a calculation for Medicaid long term care. Even more importantly, a life estate deed without powers can protect your home from Medicaid estate recovery after you die.
One consideration to note when creating a life estate deed for Medicaid purposes is that Medicaid considers a life estate deed without powers to be a gift subject to penalty. What that means is that if you create the life estate deed without powers within 5 years prior to applying for Medicaid, you will face a penalty period of Medicaid ineligibility based on the value of the house when transferred.
It is important to weigh all of your estate planning and Medicaid planning options. The attorneys at Sinclair Prosser Gasior can help you choose what path is right for you.
For more information on Medicaid Planning strategies go to: https://spgasior.com/services/elder-law-medicaid-services/.
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