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Life Estate

Jul 07
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Why You Should NEVER Use a Life Estate Deed

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WHAT IS A LIFE ESTATE DEED?

A life estate deed is a deed that creates a life estate for your benefit during your lives. At your death, the property that is in the deed will pass automatically to who you designated beneficiaries in the deed without going through probate. This will protect the property from estate recovery should you require Medicaid-covered long-term care in a nursing home. While it does give your beneficiary an interest in the property now, you retain the sole right of possession during your lives, meaning that you can tell them to leave if you wish. The only limitation on your control of the property at this time is that you cannot sell or mortgage it without your beneficiary agreeing and signing the deed.

Businessman with Coat and Tie Holding House.

Businessman with Coat and Tie Holding House.

 
After your deaths, your beneficiary will own the property as cotenants with other named beneficiaries, meaning that if either dies before the property is sold, his or her share will pass under the terms of his or her will. The alternative would be to make them joint tenants so that the property would belong entirely to the survivor.
 
Creating this life estate is considered a transfer that will make you both ineligible for Medicaid for 5 years. If the grantor does require nursing home care during that time, the transfer penalty can be ‘‘cured’’ by the beneficiary conveying their remainder interest back to the grantor. We would discuss the best strategy to follow in that circumstance.

Why should you avoid using a life estate deed?

When you transfer property with a retained life estate to someone else, you can not sell the property without the remainder owners’ consent. You also lose the right to change who the eventual owners will be; once the transfer occurs, you can’t take it back without consent. This contrasts with a trust which allows you to retain a limited power of appointment and change who the eventual beneficiaries will be at any time. The property will become an asset of the remainder beneficiaries immediately upon the transfer and will also be available to the creditors and may prevent them from obtaining means tested governmental benefits such as Medicaid and SSI.
One of the biggest reason why you wouldn’t want to transfer the home subject to a life estate is that should the family decide to sell the home while you are in a nursing home, it will result in the life estate portion of that transfer (calculated using the LIFE ESTATE VALUATION TABLE) becoming an available resource and disqualify you from Medicaid eligibility.
THE MORAL OF THE STORY: If you plan to use a life estate deed, you should plan on holding title in the life estate until the death of the grantors.
A preferred method of holding title would be via an Income Only Trust which would allow for a sale of the real estate without the corresponding ineligibility from Medicaid or having the proceeds being deemed available for the grantors.
Want to discuss more? Contact our office to schedule a no-cost consultation.
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Feb 18
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What is a Lady Bird Deed and are They Allowed in Rhode Island?

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Property Deed

What is a Lady Bird Deed and Are They Allowed in Rhode Island?

A “Lady Bird Deed“ (also known as an enhanced life estate deed) is a way to transfer property to someone else outside of probate while retaining a life estate in the property. But unlike a regular life estate, a Lady Bird deed gives you the power to retain control of the property during your life, including the right to use the property for profit or to sell the property.

THE GOOD: The 2014 Rhode Island budget addressed Lady Bird Deeds and the impacts on elder care planning techniques which rely on their use.  The bill created a new statute (R.I. Gen. Laws § 34-4-2.1) which, for the first time, officially recognizes the use of these deeds which are distinguished from traditional life estate deeds in that the life estate holder also retains the power to sell, convey, mortgage or otherwise dispose of the property without the consent or participation of the remainder interest holders.

Traditionally, these deeds have sometimes been used to transfer real estate to family members while avoiding a transfer penalty for purposes of Medicaid eligibility.

THE BAD: However, the budget contains another new statute (R.I. Gen. Laws § 40-8-3.1) that effectively eliminates this planning opportunity by providing that a Medicaid applicant, who has transferred his or her primary residence using a “Lady Bird” or “Enhanced Life Estate” deed recorded after June 30, 2014, must re-convey the remainder interest to himself or herself prior to qualifying for Medicaid benefits.  Upon re-conveyance of the remainder interest, the life estate holder will again own the entire property in fee simple, as if the transfer had never occurred.

So the good news is that Rhode Island finally recognizes Lady Bird Deeds, unfortunately, the primary purpose they were used for, namely Medicaid Planning, no longer works as the new law prohibits its usage for qualification purposes.

Still have questions?  Contact our office for a free consultation what other options still exist for you!

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