Cohen & Oalican, LLP discuss: PROTECTING YOUR HOUSE FROM THE COST OF NURSING HOME CARE Part 5 of 7
Life Estates
Another option to protect your house is with a Life Estate deed. With a Life Estate deed a client is typically giving away their house to their children but they are retaining certain rights of ownership over the property. Most commonly, clients keep the right to live in the house and the rights to rental income. They also still have an obligation to pay the house expenses. However, the house cannot be sold or mortgaged without everyone’s consent. The parents retained interest in the house is called a Life Estate. A child’s right to receive the property at death is called a remainder interest. Because a Life Estate deed passes automatically at death outside of probate, a Life Estate deed avoids Medicaid’s claim at death. One drawback to a Life Estate deed is that the house will only be protected as long as it is not sold until after the death of the Medicaid recipient. If the house is sold during the person’s life, a portion (this value is based on Medicaid’s actuarial tables) of the proceeds will pass to the Medicaid recipient and the funds will be taken by Medicaid. On the other hand, if the house is held in an irrevocable trust, all of the proceeds from the sale stay in the trust and remain protected regardless of when the house is sold.
Consult with one of the attorneys at the offices of Cohen & Oalican, LLP for Mediciad planning.
This has been Part 5 in a series of 7, brought to you by Cohen & Oalican LLP, Elder Law Attorneys Boston, Raynham, Andover
Showing posts with label life estate. Show all posts
Showing posts with label life estate. Show all posts
Thursday, June 3, 2010
Thursday, May 13, 2010
Cohen & Oalican Answer: Can a Life Estate Still Protect Your House from Medicaid Part 2
Part 2
The three year look back period was the most important reason to choose a Life Estate deed instead of an irrevocable trust to protect a client’s house. That benefit has been eliminated. Now clients and attorneys must consider the limitations of Life Estates in relation to irrevocable trusts. Most importantly, the Life Estate only works if the house is not sold until after the Medicaid recipient’s death. If the house is sold during the person’s life a portion (this value is based on Medicaid’s actuarial tables) of the proceeds will pass to the Medicaid recipient and the funds will be taken by Medicaid. If a house is held in an irrevocable trust, all of the proceeds from sale stay in the trust and remain protected regardless of when its sold. Although families understand the issue when they create the Life Estate, this becomes a pressing issue when the client moves into a nursing home and the house is empty. At that point, families must either rent the house (taking on the aggravation of being a landlord) or leave the house empty and use their own funds to pay for the property taxes and insurance. Both options are not ideal.
There are also capital gains tax issues to consider when choosing between a Life Estate deed and an irrevocable trust. The tax questions are somewhat up in the air right now and many attorneys believe that unless Congress changes the tax laws, Life Estate deeds will no longer give clients a step-up in the tax basis resulting in children paying capital gains taxes on all of the gain accrued during the parents’ lives.
That all being said, a Life Estate deed does have one important benefit. Its simple. A Life Estate
deed is easy to put in place. Its just a deed. Also, if everyone on the deed is agreeable, its also
easy to unwind; everyone just deeds the house back to the original owners. Reversing an irrevocable trust is much more complicated (and sometimes not possible) with an irrevocable trust.
Everyone wants to protect their home. The question remains what is the best strategy to do the job. In weighing your options, consider, how much control you want to keep, when the house will be sold, your need to use the house equity and tax issues. Life Estate deeds do still work. However, irrevocable trusts are often a better option to protect your home.
Contact Cohen & Oalican to discuss a medicaid plan that works for you.
The three year look back period was the most important reason to choose a Life Estate deed instead of an irrevocable trust to protect a client’s house. That benefit has been eliminated. Now clients and attorneys must consider the limitations of Life Estates in relation to irrevocable trusts. Most importantly, the Life Estate only works if the house is not sold until after the Medicaid recipient’s death. If the house is sold during the person’s life a portion (this value is based on Medicaid’s actuarial tables) of the proceeds will pass to the Medicaid recipient and the funds will be taken by Medicaid. If a house is held in an irrevocable trust, all of the proceeds from sale stay in the trust and remain protected regardless of when its sold. Although families understand the issue when they create the Life Estate, this becomes a pressing issue when the client moves into a nursing home and the house is empty. At that point, families must either rent the house (taking on the aggravation of being a landlord) or leave the house empty and use their own funds to pay for the property taxes and insurance. Both options are not ideal.
There are also capital gains tax issues to consider when choosing between a Life Estate deed and an irrevocable trust. The tax questions are somewhat up in the air right now and many attorneys believe that unless Congress changes the tax laws, Life Estate deeds will no longer give clients a step-up in the tax basis resulting in children paying capital gains taxes on all of the gain accrued during the parents’ lives.
That all being said, a Life Estate deed does have one important benefit. Its simple. A Life Estate
deed is easy to put in place. Its just a deed. Also, if everyone on the deed is agreeable, its also
easy to unwind; everyone just deeds the house back to the original owners. Reversing an irrevocable trust is much more complicated (and sometimes not possible) with an irrevocable trust.
Everyone wants to protect their home. The question remains what is the best strategy to do the job. In weighing your options, consider, how much control you want to keep, when the house will be sold, your need to use the house equity and tax issues. Life Estate deeds do still work. However, irrevocable trusts are often a better option to protect your home.
Contact Cohen & Oalican to discuss a medicaid plan that works for you.
Monday, May 10, 2010
Cohen & Oalican Answer: Can a Life Estate Still Protect Your House from Medicaid Part 1
Part 1
Can a Life Estate Still Protect Your House from Medicaid?
We are often asked by clients and attorneys alike, whether Life Estates still “work”. In other words, can you protect your house from a Medicaid lien with a Life Estate deed. To cut to the chase, Life Estate deeds still work, but they may not be the best option. First, let’s clarify the question. If an individual applies for Medicaid (MassHealth in Massachusetts), their home is considered to be a noncountable asset. Although the regulations make it sound as if your home is a “protected” asset, that is far from true. As a noncountable asset, Medicaid cannot force you to sell your home to obtain eligibility (as long as the equity is less than $750,000). However, at the death of the Medicaid recipient, if the house is in that person’s sole name, the State will have a claim against the house for reimbursement for benefits provided during that person’s lifetime.
Frequently, our asset protection plans focus on a client’s home. Medicaid is only authorized to make a claim against an interest in a house that is in the sole name of the Medicaid recipient. These assets are referred to in legal jargon as “probate assets”. For example, a house that’s held as joint tenants passes to the survivor automatically by virtue of the deed and thus avoids probate and a Medicaid lien.
For many years a simple way to protect the house from Medicaid was by using a Life Estate deed. With a Life Estate deed a client is typically giving away their house to their children but they are retaining certain rights of ownership over the property. Most commonly, clients keep the right to live in the house and the rights to rental income. They also still have an obligation to pay the house expenses. However, the house cannot be sold or mortgaged without everyone’s consent. The parents retained interest in the house is called a Life Estate. The childrens’ rights to receive the property at death is called a remainder interest. Because a Life Estate deed passes automatically at death outside of probate, a Life Estate deed avoids Medicaid’s claim at death.
Prior to February, 2006 (when the federal Medicaid laws changed), Life Estates were quite common. At that time Medicaid imposed a three year “look-back” period for transfers to individuals and a five year “look-back for transfers to trusts. Consequently, clients and attorneys often preferred to use a Life Estate as part of their asset protection plan instead of an irrevocable trust because the house would be protected in only three years. That is no longer the case. Under current law, all transfers have a five year look-back period and in effect make the applicant and their spouse ineligible for five years.
Part 2 to follow
The experienced attorneys at Cohen & Oalican, LLP, can help you prepare for, and resolve, all of your medicaid planning and administration needs.
Can a Life Estate Still Protect Your House from Medicaid?
We are often asked by clients and attorneys alike, whether Life Estates still “work”. In other words, can you protect your house from a Medicaid lien with a Life Estate deed. To cut to the chase, Life Estate deeds still work, but they may not be the best option. First, let’s clarify the question. If an individual applies for Medicaid (MassHealth in Massachusetts), their home is considered to be a noncountable asset. Although the regulations make it sound as if your home is a “protected” asset, that is far from true. As a noncountable asset, Medicaid cannot force you to sell your home to obtain eligibility (as long as the equity is less than $750,000). However, at the death of the Medicaid recipient, if the house is in that person’s sole name, the State will have a claim against the house for reimbursement for benefits provided during that person’s lifetime.
Frequently, our asset protection plans focus on a client’s home. Medicaid is only authorized to make a claim against an interest in a house that is in the sole name of the Medicaid recipient. These assets are referred to in legal jargon as “probate assets”. For example, a house that’s held as joint tenants passes to the survivor automatically by virtue of the deed and thus avoids probate and a Medicaid lien.
For many years a simple way to protect the house from Medicaid was by using a Life Estate deed. With a Life Estate deed a client is typically giving away their house to their children but they are retaining certain rights of ownership over the property. Most commonly, clients keep the right to live in the house and the rights to rental income. They also still have an obligation to pay the house expenses. However, the house cannot be sold or mortgaged without everyone’s consent. The parents retained interest in the house is called a Life Estate. The childrens’ rights to receive the property at death is called a remainder interest. Because a Life Estate deed passes automatically at death outside of probate, a Life Estate deed avoids Medicaid’s claim at death.
Prior to February, 2006 (when the federal Medicaid laws changed), Life Estates were quite common. At that time Medicaid imposed a three year “look-back” period for transfers to individuals and a five year “look-back for transfers to trusts. Consequently, clients and attorneys often preferred to use a Life Estate as part of their asset protection plan instead of an irrevocable trust because the house would be protected in only three years. That is no longer the case. Under current law, all transfers have a five year look-back period and in effect make the applicant and their spouse ineligible for five years.
Part 2 to follow
The experienced attorneys at Cohen & Oalican, LLP, can help you prepare for, and resolve, all of your medicaid planning and administration needs.
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