Tuesday, January 1, 2013

How to Protect your Home from Nursing Home Costs – Part 2

The Life Estate Deed

Many seniors will spend some time in a nursing home. Because Medicare’s coverage for nursing home costs is limited most nursing home residents end up on Medicaid. But, unlike Medicare, Medicaid expects to be repaid when you die for money spent on your nursing home and other long term care. It can force your home to be sold to pay the government back. The Medicaid repayment laws are referred to as the Medicaid Estate Recovery program.
Most people want their home to go to their children or other family, not to the government. Many wonder whether there is anything they can do to protect their home from being lost if they end up needing long term care. In this series of articles I am discussing strategies seniors are using to protect their homes from being lost to the government estate recovery program. This post discusses the Life Estate Deed.  
What is a Life Estate Deed?
A life estate deed is a way you can give your home to your children while you are alive but retain rights and control over it during your remaining lifetime. For example, you deed your home to your children, but the deed provides that your keep the right to live in the home for the rest of your life. You may also retain various other controls over the property.
In many states, including Pennsylvania, the home will then pass to your children upon your death without going through probate and without being subject to Medicaid Estate Recovery.
There are many different types of life estate deeds. The variations include revocable deeds which allow you to sell the home without your children’s approval, and irrevocable deeds where you no longer have the ability to sell the property without your children’s consent.  These variations and their numerous sub-types can have vastly different consequences in terms of Medicaid.
Seniors sometimes do a life estate deed to a trust rather than directly to their child or children. The trust can offer protection from creditors of your child, or marital problems, or the possibility that your child may predecease you.  In my opinion, the life estate deed to a Home Protection Trust is an underused planning tool. It can protect your home while providing you with important flexibility to deal with whatever unforeseen changes might occur in the future.
Another variation of a life estate deed involves the senior buying a life estate interest in their child’s home. In the right circumstances this planning option can allow you to protect financial assets and qualify for future Medicaid benefits more easily.  But special Medicaid rules apply to the purchase of a life estate in a child’s home and tax consequences must be carefully considered.    
Other Issues to Consider
As with so many aspects of Medicaid law, what seems simple on the surface can get very complicated. Many issues other than avoiding estate recovery need to be considered before you sign a deed to your home. For example, a life estate deed can be treated as a gift which can create a lengthy ineligibility period for needed Medicaid long term care benefits. (There are ways this problem can be addressed - such as having the deed transfer take place more than 5 years prior to the application for Medicaid). Avoiding tax complications can also be an important issue.    
The life estate deed is a very common planning device that seniors frequently use to protect their homes from the cost of long term care. It’s a planning tool to consider if you are worried that the state will take your home.   
But you don’t want to do a life estate deed without getting expert advice from an elder law attorney who understands the Medicaid qualification and estate recovery rules in your state. An experienced elder law attorney can help you sort through the options and determine which option is best for you and your family. 
If you live in Pennsylvania, you can contact Marshall, Parker & Weber to discuss whether a life estate deed makes sense for you. Call us at 800-401-4552 or find us on the web at www.paelderlaw.com
Further Information

How to Protect your Home from Nursing Home Costs – Part 1: The Home Protection Trust


How to Protect your Home from Nursing Home Costs - Part 3: Exempt Transfers


Medicaid Estate Recovery: A Medicaid Death Tax


National Elder Law Foundation (a listing of lawyers who have attained Certified Elder Law Attorney status in each state) 

Marshall, Parker & Weber (the website of my law firm contains many articles on protecting your assets from nursing home and other long term care costs)

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