Home is the center of everything in your family. It’s the place of gatherings, birthdays, holidays and celebrations. To ensure it continues as a place of love and laughter for generations to come, you’ll need an estate plan to help you effortlessly transfer your property to a beneficiary. An estate planning lawyer will propose the best solution for your beneficiaries to inherit property and to avoid probate court. Such options could include an enhanced life estate deed, transfer-on-death (TOD) deed, or Lady Bird deed, which might offer additional benefits over a traditional estate plan. A Lady Bird deed is an estate planning tool for eligible Medicaid recipients; where the deed protects a home as an inheritance from the Medicaid Estate Recovery Program.
The Lady Bird Name
Traditional Life Estate Deed vs Lady Bird Deed
In a traditional life estate deed, as the owner of the property (the grantor), you reserve the right to live in the home until your passing. At the time of your death, the property will transfer to the beneficiary (the grantee) listed in the deed. As the property owner, your interest is called a “life estate” and the beneficiary’s interest is called a “contingent remainder.” Unfortunately, as a life tenant you cannot sell the property or take out a mortgage loan against the home without consent from the beneficiary (the remainderman). Conversely, the beneficiary cannot sell or mortgage the property while you’re alive.
Like a traditional life estate deed, a Lady Bird deed enables you to live in the home until your passing, however you have the right to sell or mortgage the property at any time. You can also change the beneficiary or undo the deed, all without the beneficiary’s consent.
Benefits of a Lady Bird deed include:
- Property avoids probate upon your death.
- Protecting the property from claims against the beneficiary.
- Avoiding the federal gift tax.
- You can sell or mortgage the property at any time.
- Ability to cancel the deed.
- You can qualify for Medicaid benefits for long-term care.
- Maintain state homestead rights and property tax limitations.
States that Authorize Lady Bird Deeds
At this moment, only five U.S. states authorize the use of Lady Bird deeds: Florida, Michigan, Texas, Vermont, and West Virginia. Of the remaining 45 states, approximately half recognize TOD or beneficiary deeds, which have many similarities to a Lady Bird deed. Here’s a list of the states that authorize TOD deeds.
Benefit of Lady Bird Deeds and Medicaid
If you’re considering applying to Medicaid for long-term nursing care assistance, a Lady Bird deed might be something to consider. When qualifying for Medicaid, the value of your assets must not exceed a certain amount; fortunately, most states allow you to keep your primary residence and still qualify for services. However, your home could be included as an asset if, five years prior to applying for Medicaid, you established a traditional life estate deed to avoid probate. In this scenario the value of your assets may disqualify you from Medicaid.
Upon your passing, as a Medicaid recipient, Medicaid could make a claim against your probate court to recover the benefits paid. By using a Lady Bird deed, which avoids probate, your home is not part of the probate estate; in doing so, Medicaid cannot pursue your property.
Medicaid Estate Recovery
Per Medicaid, “State Medicaid programs must recover certain Medicaid benefits paid on behalf of a Medicaid enrollee. For individuals aged 55 or older, states are required to seek recovery of payments from the individual’s estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. States have the option to recover payments for all other Medicaid services provided to these individuals, except Medicare cost-sharing paid on behalf of Medicare Savings Program beneficiaries.
Under certain conditions, money remaining in a trust after a Medicaid enrollee has passed away may be used to reimburse Medicaid. States may not recover from the estate of a deceased Medicaid enrollee who is survived by a spouse, child under age 21, or blind or disabled child of any age. States are also required to establish procedures for waiving estate recovery when recovery would cause an undue hardship.
States may impose liens for Medicaid benefits incorrectly paid pursuant to a court judgment. States may also impose liens on real property during the lifetime of a Medicaid enrollee who is permanently institutionalized, except when one of the following individuals resides in the home: the spouse, child under age 21, blind or disabled child of any age, or sibling who has an equity interest in the home. The states must remove the lien when the Medicaid enrollee is discharged from the facility and returns home.”
Other Estate Plan Documents to Consider
- Quitclaim Deed
- Revocable Trust
As mentioned above, not all states recognize Lady Bird deeds; however, if you live in a supportive state, creating one might be a good solution to avoid probate. Additionally, such a deed may help you qualify for Medicaid long-term nursing care. If your estate attorney crafts a Lady Bird deed for your estate plan, we encourage you to upload a copy of the document to your HereToday Vault.
Disclaimer. HereToday is not a legal service. This content should not be taken as legal advice. Before drafting any legal document, please consult an attorney.