How A Lady Bird Deed, Nursing Home Medicaid Benefits, & Your Home Are Important

bird and birdhouse

A “Lady Bird” deed preserves the homeowner’s ability to immediately qualify for Medicaid benefits including payment for nursing home care.

Here’s how it works:  Transfers of assets within a “look-back” period may disqualify Medicaid applicants from immediately qualifying for benefits—but creating a Lady Bird deed, also called an enhanced life estate deed, is not considered a transfer for Medicaid purposes because the homeowner retains the right to sell the property or revoke the deed. No gift is ever made.

This deed is nicknamed “Lady Bird” because the Florida attorney who first drafted the deed used the name in his example. Sorry, Texans, we don’t get to claim this Ladybird.

What are the legal details?

A Lady Bird deed, technically called an enhanced life estate deed, allows a property owner to transfer a remainder interest in a home to the beneficiaries named in the deed, while reserving a life estate (a right to occupy and use the property during his or her lifetime) The grantor (or person who creates the deed) also keeps the right to sell or mortgage the property, change the remainder beneficiaries at any time, or cancel the deed altogether.

If the owner dies without revoking the deed, the property passes outright to the remainder beneficiaries without going to court.

Pretty neat.

How is an enhanced life estate deed different from a traditional life estate deed?

With both the enhanced life estate deed and the traditional life estate deed, a property owner transfers a remainder interest in the property to the ultimate beneficiaries and retains a life estate. However, a property owner using a traditional life estate deed does not reserve the right to sell or give away the land without the consent of the remainder beneficiaries.

The enhanced life estate deed allows the property owner to reserve those rights. That’s why it’s enhanced I guess.

Plenty of benefits to enhanced life estate deeds

Enhanced life estate deeds offer many advantages over traditional life estate deeds:

  1. They preserve the homeowners ability to immediately qualify for Medicaid benefits. Transfers of assets within a “look-back” period may disqualify applicants from immediately qualifying for benefits. However, executing an enhanced life estate deed is not considered a transfer for Medicaid purposes because the homeowner retains the right to sell the property or revoke the deed. No gift is ever made.
  2. They provide homeowner the flexibility to change the remainder beneficiaries at any time.
  3. They allow the homeowner to sell or mortgage the property without the consent of the remainder beneficiaries.
  4. They protect the property from the creditors of the remainder beneficiaries during the homeowner’s lifetime.
  5. Because the owner of the property retains the right to take back the property during his or her lifetime, the transfer will not count as a gift for federal gift tax purposes.

Beneficiaries receive a stepped-up basis

Because property will remain a part of the grantor’s estate, the cost basis of a property transferred using an enhanced life estate deed would be “stepped-up” to the value of the house on the date of death. This may significantly reduce the amount of capital gains taxes owed when the property is sold.

Can a trust be a beneficiary? 

Yes, a trust can also be a beneficiary. If you love your family but don’t want them to have property outright for whatever reason, sometimes we create a revocable trust to hold the property.

Need help creating a Lady Bird deed or qualifying for Medicaid nursing home benefits? Give us a call at Weaver Firm – Attorneys at 817-638-9016 to schedule an appointment. 

Travis Weaver, Attorney

Travis Weaver, Attorney

What is a Medicaid Trust and How Can it Protect Your Legacy?

Photo of lady and daugher

Long-term medical care is expensive, and there is no indication that trend will reverse itself anytime soon. The national median cost of long term care is $44000-$91000. If you don’t have this saved away, you aren’t alone. There are governmental programs that help you pay for those types of programs, but they require planning. That means you need to be proactive in considering the implications of long-term medical care costs when crafting your estate plan. Many people find themselves falling short of the funds needed to pay for increasingly costly long-term care but still having too many assets to qualify for Medicaid funds to help cover those costs. This no-man’s land is a place no one wants to be. Thus the name. A recent article from Marketwatch.com provides some information on Medicaid trusts, estate planning tools that can help you navigate the high cost of long-term care insurance while still holding onto important assets you want to pass to your heirs. Here are some highlights.

Medicaid “Look-Back” Rules

One of the reasons that you should start planning for long-term care costs as soon as possible is the existence of Medicaid “look-back” rules. Right now, Medicaid looks at any major gift you’ve given in the last five years. Gift is used in a loose sense. Any major transfer is likely to be scrutinized. My partner, Rick Weaver, always says “treat a Medicaid application like your tax return with a 100% chance of audit.” These rules mean that even if you are able to prove your eligibility for Medicaid today, you will still be required to have been eligible for each of the past five (5) years, too. If you find yourself in a situation where you are facing heightened medical costs, especially from unanticipated long-term care needs, you will not simply be able to transfer assets somewhere else to qualify. The earlier you start planning, the more secure you can be in your ability to qualify for potentially necessary Medicaid funds when it comes to your long-term care plans.

Basics of Medicaid Trusts

Medicaid trusts must be irrevocable trusts. That means that once you establish them, you generally cannot revoke or modify them. The reason for this is fairly obvious. Medicaid doesn’t want to transferring funds with an ability to liquidate those funds down the road. These Medicaid trusts work by transferring ownership from you and your estate to the trust itself so that assets you decide to place in the trust are not counted when determining your eligibility for Medicaid funding. The individual creating the trust cannot be the trustee of the trust, which means that you are essentially handing over control of the assets you assign to a Medicaid trust to the individual you decide to name as trustee. It is important to make sure you appoint someone that you trust and that you know will manage the assets within that trust responsibly. If this concept is confusing after I explained the look back period, don’t worry. Creating a trust for medicaid is a gift for medicaid purposes. This is why effective planning often takes place earlier in life as opposed to right before you need Medicaid.

Medicaid trusts can sometimes be daunting when considering their upfront costs. You will also likely be responsible for annual accounting fees when it comes to tax preparation and other important trust maintenance costs. However, the best way to look at these trusts are as an investment in your long-term care. Paying to establish a Medicaid trust now can be significantly more cost-effective than being required to pay for long-term care without the assistance of Medicaid funds. Would you rather face a small bill today or face months of long term care at $5000+ a month? You can retain significantly more assets to distribute to your heirs than you would be able to if those assets were needed to pay for long-term care expenses. If you are concerned about the potential implications the costs of long-term care may have on you and your estate, come talk to us today. Early planning is smart planning.