Life Estates in Medicaid Planning

Posted by: | Posted on: January 21, 2021

A senior lawyer will often suggest that customers transfer their home to their children, retaining a “life estate.” What does that mean, and what are the consequences of such an arrangement?Do you want to learn more? Visit Phoenix Estate Planning Attorney Association .

The children immediately own the house when a person signs a deed to their children’s home, and the parents no longer own any interest in the house. The parents are therefore at the mercy of the kids, who could at any time legally boot them out of the house.

“My children would never do that to us!” you say. Maybe not, but in a bad business deal, one of your children could be sued, divorced or go bankrupt. Since the kids now own the house and not you, they could attach “your” house to those creditors and force a sale, leaving you on the street.

Often, deeding the house to the children is a better solution, but maintaining the right to live in the house for the rest of your life, so that your children only own it after your death (or, if you’re married, after the death of your survivor and your spouse). “remainder interest”remainder interest,”life estate”life estate.

A divorce or lawsuit against a child can not have any impact on your continued right to use and own your house, since your children have no rights to the house during your lifetime.

The house is immediately and automatically owned by your children upon your death (or, if you are married, upon the death of the survivor, by you and your spouse). To transfer ownership to them at that point, no probate is required. In fact, even if your will were to try to leave someone else’s house, the will would be ignored, since you already gave the house to your children by way of an act.

For Medicaid purposes, granting one or more children a remaining interest may have the beneficial effect of protecting them from “estate recovery,” i.e., the state’s claim after your death for reimbursement of any Medicaid expenses paid during your lifetime on your behalf. In most states, the rule is that only assets can be subject to estate recovery in one’s “probate estate” So if, at your death, the house automatically passes to the children outside your probate estate, then the state is out of luck.