I often get the call from my client’s children – What do we do now, our parents are hoarders and they are now in the nursing home? or maybe they passed away.  Even when the parents are not hoarders, the task of cleaning out someone’s lifetime possessions is overwhelming and stressful.

            Most of the time people prefer to have the family come in and take memorable items before anything else is decide.  This can lead to family fights and feelings that are hurt for a long time.  Before this happens, I always suggest that the parents make a list of who they would like the items to belong to and give a reason why. It might not be easy for your parents to give up their items now, but they can put a list together to help you in the future. Many times, children are hurt because they wanted the items and it was given to a sibling, but a little explanation from the parents can solve some of the hurt feelings. 

Having family member sort through and take items could be a long process and an even longer article of the pros and cons. So I am going to skip over this problem and save it for another article.  In this article let’s just say the family has already been through the house and no one wants what is left in the house.   Many families decide they are going to have a rummage sale or sell things on online.  That might work if you have a few extra months that you are willing to spare and you might end up doing it on your own causing more hard feelings.  Other families decide right from the get-go to hire a professional to have an estate sale or an estate auction.  That is great too and can bring in some extra cash for expenses.

But that is not what this article is about either.  Many of my clients are getting into the trend of giving to the community, or upcycling, or recycling or whatever the new term is. The parents and the families like the idea that they can give back to the community and certain groups which meant a lot to them. Some of these places are tax deductible which is always a plus.  This article is to provide some idea of where, how, what, and when to recycle or upcycle.

1.     Animal shelters – some will take old chairs/furniture for dogs and cats to sleep on, detergent, bleach, shampoos, conditioners, soaps, old newspapers, bedding, towels, place mats, jarred all-meat baby food, hand sanitizer, office supplies, unused pet supplies, pet food, leashes, plastic/paper, bags, collars, heating pads, litter boxes, and brushes
 
2.     Homeless shelter – towels, sleeping bags, mats, blankets shoes/socks, shampoo/conditioners, personal items, reading glasses, toys, plastic bags, hat, gloves, telephone books, toys, games, and clothes
 
3.     Habitat for Humanity ReStore – furniture, appliances, cabinets, décor, tools, lights, antiques, doors, windows, fixtures, flooring, paint, building materials, and outdoor equipment
 
4.     Senior Centers – Kleenex, disinfecting wipes, batteries, stamps, microphones, popcorn maker, small bingo prizes, radio, games, glasses, walkers, wheelchairs, and dvd players.
 
5.     Foster care organizations – clothing, luggage, personal items, games, stuffed animals, and toys.
 
This is a really short list of where you can donate items.  I just wanted to get you thinking outside of the box. I could be writing forever on this topic.  Besides, there is always Ronald McDonald House, Goodwill, Rawhide, Disabled American Vets, and St. Vincent’s which are all great nonprofit organizations to donate to.

I want to say thanks to Mary L., one of my clients that got me started on this subject.  She provided me with lots of useful information.
Also, I want to draw your attention to two great website I found online:

1.               Missminimalist.com – This is a great article that list 101 places you can donate items to and describes what they do.
http://www.missminimalist.com/2011/04/where-to-donate-your-stuff-101-places-your-clutter-can-do-good/
2.     Donationtown.org – This website list different charities that will either pick up the item or provide a place to drop off the item.
http://www.donationtown.org/charity/
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         I am sure that there are plenty of other organizations out there, it just takes a little looking on the internet, but fair less time than a rummage sale.  As a reminder, this is not a time to get rid of your garbage, it is a time to provide items which can benefit charities and their patrons. Please always call the organization first to make sure they are still accepting those items.
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Have fun upcycling, recycling, and giving back to your community!
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         The simplest answer is that prepaying your funeral is done with a specific funeral home.  While burial insurance is an irrevocable insurance policy that may only be used for funeral expenses.  Of course, there is more to each one that will be discussed in detail below.

            As more of the baby boomers are entering the nursing home, they are looking to take the stress off of their families by planning their own funerals.  Many of them are wanting to pay the money up front to avoid their families having to chip in for the cost to bury them.  One of the methods used is to prepay the cost of the funeral upfront with a specific funeral home.  Although they might feel a great weight off of their shoulders, they might have caused their family a headache in the end.

            Most of the time a person will pick out the casket and services they want, then pay the total cost upfront at a specific funeral home.   This is called prepaying your funeral.  Unfortunately, the cost of the funeral might go up because of inflation or the casket needs to be a special order because the casket is not made any longer.  Normally, the family does not find out about these inflated cost until after the funeral is held and a bill is given to them.  At that time, there is nothing the family can do especially if the contract is written with no inflation factored in.  In other situations, the funeral home goes out of business or they might sell the business to a new owner that does not honor the contract.

            In 2012 the Wisconsin Funeral Directors Association was sued for misappropriating the funds placed in their burial trust. Many funeral homes agreed to the settlement that they would honor the contract with their purchaser and give the purchaser 100 cents on the dollar of the contract.  However, there are many funeral homes which did not sign the settlement which left the purchaser’s only recourse was to sue the funeral homes.  It is very important to know where the funeral director is investing your prepaid funeral money or you could be left without any money for your funeral.

            Besides the inflated cost, business being sold, contracts not honored and investments lost, you also need to remember you are locked into a specific funeral home.  What if you move out of state to be near your children?  You’re in a contract and might not be able to get out or get your money back.  What if you don’t like that funeral home because the older owner sold out and the new owner doesn’t keep the place nice?  You’re in a contract and might not be able to get out or get your money back.  Being locked into a specific contract at a specific location has a lot of unknown risks. 

This is not to say that many funeral directors are good and honest, there are.  Some of these same funeral directors have turned to providing irrevocable funeral trust or burial insurance.  For this article irrevocable funeral trust and burial insurance as the same insurance just a different name depending on who you are speaking to.  Many insurance agents use the term irrevocable funeral trust while the agents for Medicaid use the term burial insurance.

Irrevocable Funeral Trust are insurance products that provide protection from creditors and a Medicaid spend down.  Most states allow a person to set aside $15,000 (2018) to pay for their funeral expenses.  These expenses include but are not limited to: cremation, services, casket, embalming, funeral home facilities, transportation, death certificates, musicians, clergy, flows, clothing, meals, etc.
The pros of these funeral trust:

1.     Not a divestment for Medicaid or SSI and does not have a 5 year look back period.

2.     Protected money from creditors.

3.     Does provide a little bit of growth, tax free.

4.     Not locked into one location for your funeral.  You may have your funeral wherever you want it.

5.     Normally pay the funeral home within 48 hours.

6.     Funeral director does not know how much is in the insurance, so family will not be pressured to spend all of it.

7.     Any money left over goes back to the estate, unless the person was on Medicaid and single, then Medicaid has a right to recover the money.

8.     Insurance product, so it is back by the state insurance commissioner.

9.     30 day cancellation right.

10.  You still can pre-plan your funeral without paying upfront to the funeral home.

11.  Don’t need to worry about funeral home going out of business or selling.

12.  Many plans let you make installment payments.

13.  If you already have a life insurance policy with cash value that is not exempt for Medicaid purposes you may do a 1035 exchange to purchase a funeral trust.

       The biggest negative is that once you put the money into these insurance products, it is irrevocable and you are not getting the money back out.  However, since most of us are going to die (unless the world ends before that) we will need to pay for our funerals.  It is nice to have the money already waiting, so that so our family does not need to struggle to pay for our funeral.  Estate and funeral planning is one last gift to our family.
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The “B” stands for Benefit Corporations.  The new B Corporation will become effective in Wisconsin on February 26, 2018 under 2017 Wisconsin Act 77.   The B Corporation is a hybrid of a “for-profit” and a “nonprofit” corporation.  B Corporations are allowed to seek profits while still providing benefits to societies.

B Corporations must have a purpose for creating a general public benefit.  General public benefit means “a material positive impact on society and the environment by the operation of a benefit corporation taken as a whole, through activities that promote some combination of specific public benefits” as required under Wis. Stats. 204.

Under Wis. Stat. 204 (7) a specific public benefit includes:
(a)   Providing low-income or underserved individuals or communities with beneficial products or services.
(b)  Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business.
(c)   Preserving the environment.
(d)  Improving human health.
(e)   Promoting the arts, sciences, or advancement of knowledge.
(f)   Increasing the flow of capital to entities with public benefit purpose.
(g)  The accomplishment of any other particular benefit for society or the environment.

The term “triple bottom line” has been associated with the B Corporations that means their approach is: profits, people, and planet.

Some of the benefit of a B Corporations is that the corporation may protect their social goals and not just focus on what the corporation must do for-profit. This will allow the companies to be taxes and protected as a regular corporation, but also allow the company to be held to a higher standard on social issues.  Some social issues or goals may be to work with environmentally responsible suppliers or hire only homeless people or someone with a criminal background.  Other goals might be to donate a percentage of their profits to charities or allow workers to donate their time while still being paid their regular salary.
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Although B Corporations have been around for over 10 years, the total benefit of these hybrid corporations have just begun to show in society and are sure to grow overtime.  Many consumers like the thought of buying from companies who are impacting the public in positive ways and given the choice will choose the B Corporation over a regular corporation.
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First, let’s clear up some of the legal definitions.  The “Grantor” is the person who currently owns the property and is going to transfer the property, by sale or gift or another means, to the “Grantee”.  The “deed” is the legal document that once it is signed and delivered will convey the transfer.  In Wisconsin, the effective date (legal date) is when the deed is complete and given to the grantee, it does not need to be filed with the Register of Deeds.  Filing it with the Register of Deeds is to give notice to all 3rd parties who the owner is.  It is still recommended to file it with the Register of Deeds, what if you lose the deed?  No one else will know who the true owner is.

Now, let’s talk about the different types of deeds.

Quit Claim – This type of deed does not provide any warranties or guarantees that title is good or that the property being transferred is free of all liens/claims. This deed is used mostly between family members or when there is a non-sales transaction.

Warranty Deed -  This deed conveys property with warranty covenants to the buyer.  Some of the covenants of seisin (possession), encumbrances, quiet enjoyment, and further assurance.

Special Warranty Deed – This deed contains the covenant that the title is free and clear of encumbrances only arising by, through, or under grantor, with any exceptions expressly noted in the conveyance.

Trustee Deed – This is just like a special warranty deed but it is named after the grantor who is the trustee of a trust.  This deed warrants that the title to the property is good, indefeasible, in fee simple, and free and clear of encumbrances arising by, through, or under grantor who is the trustee of the trust that owns the property.

T.O.D. (Transfer on Death Deed Form) – This allows an owner to transfer his or her property by designating one or more beneficiaries to receive the property after the owner passes away without the property first going through probate.  The owner may void out this deed any time while he or she is alive.

Land Contract – This is a contract between the seller and buyer, where the seller provides the buyer with financing to purchase the property.  The seller retains the legal title to the property, while the buyer takes possession of the property until all the terms of the contract has been satisfied.

Condo deed – This a deed used by a condominium developer to transfer a condo and certain rights to a buyer.  Some rights include the right to use common areas in the condominium development.

Guardian deed – This deed is used when the owner of the property was or is the ward of a court appointed guardian.  The court must approve or give the guardian’s right to sell the property.  Many times these deeds do not contain any warranties.

Personal Representative Deed – This deed is used by the personal representative (executor) of a deceased’s estate appointed by the probate court or by an administrator (agent) for someone who is incapacitated.  Many times these deeds do not contain any warranties.
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Life estate -  This deed allows the owner (Life Tenant) to convey the property to the new owner (Remainderman) with keeping certain rights during their life time.  The Life Tenant is able to use the property until their death.  Normally, they will pay for taxes, insurance, and upkeep of the property.  The Life Tenant is entitled to all rents during their life time.  Upon the Life Tenant’s death the property transfers to the Remainderman without going through probate court.    If anyone of the parties would like to sell the property they must have all the parties agree to the sale.

A Living Trust is a revocable trust which means that you are able to change the terms of the trust while you are living.   A Living Trust is not the same as a Living Will which is an advance directive dealing with your healthcare.

​A Living Trust allows you to manage your property while you are alive.  If you become incapacitated it will allow a trustee to take over the management of the trust’s property. The trust uses the grantor’s social security number for tax purposes.  After you pass away the trust will become irrevocable and will need an EIN (employee identification number).  The trust’s assets will transfer to the beneficiaries of the trust without first going to property court.  Since the assets transfer without going to probate court the terms of the trust and the trust assets transfer remains private. 

With a Living Trust you are able to dictate when and how the property will transfer to the beneficiaries. This is called “Controlling your assets from the grave.”  This is good if you have a beneficiary that is under 18 years old or you do not want your beneficiary to receive the property right after you pass away.  Examples:  If someone is on government assistance, has a lot of debt, special needs, or it might be that the person is applying for financial aid for college.  A Living Trust will help with all of these problems.  A Living Trust normally does not protect your assets from bankruptcy, law suits, or divorce because the trust is revocable.

An Irrevocable trust can’t be modified or terminated very easily.  In order to change the terms of the trust, all the beneficiaries would need to agree to the change, including any successor beneficiaries.  This can become a problem when you name a charity as one of the beneficiaries.  The grantor (person who creates the trust), trustees, and beneficiaries could also seek a court order allowing the modification or termination of the trust.

An Irrevocable trust are used for estate and tax purposes.  Once the grantor transfers the ownership of assets to the trust, they are no longer the owner for estate or taxes purpose. The Irrevocable trust will receive its own EIN and not use the grantor’s social security number.  This will elevate the grantor from paying estate taxes on the assets and also any liability (bankruptcy, law suits, or divorce).  Also, if the assets are transferred 5-years in advance of applying for Medicaid, those assets can’t be counted as assets or required to be spent down.  However, if the grantor is also a beneficiary of the trust, those assets that they are a beneficiary of, will be included for estate, tax, and Medicaid purposes.


Summary:                                         Living Trust (Revocable)                   Irrevocable
Avoid Probate?                                              Yes                                              Yes

Change the terms ?                                        Yes                                             No – not easily

Who owns property?                                      Grantor                                       Trust

Assets Protection?                                          No                                              Yes

Assets Taxed as?                                           Grantor – SS#                            Trust- EIN

Privacy?                                                          Yes                                             Yes

Dictate when and how
beneficiary receives assets?                           Yes                                            Yes

Manage property
if incapacitated?                                               Yes                                           Yes
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Medicare will pay for some of the cost of a nursing home stay, but certain conditions must be met.   All of the following conditions must be met:
1)     You have Part A and have days left in your benefit period.
2)     You have a qualifying hospital stay.  
3)     Your doctor has decided that you need daily nursing home care.
4)     You get these skilled services in a nursing home that's certified by Medicare.
5)     You need these skilled services for a medical condition that was either:
6)     A hospital-related medical condition.
7)     A condition that started while you were getting care in the skilled nursing facility for a hospital-related medical condition
 
An inpatient stay begins on the day you’re formally admitted to a hospital with a doctor’s order. That’s your first inpatient day. The day of discharge doesn’t count as an inpatient day.
 
For day 1-20 the total cost of the nursing home will be paid 100%.
 
For day 21-100 there will be a coinsurance of $167.50 per day of each benefit period (2018)
 
For day 101 and beyond you must pay the total cost.

Most patients who can’t afford for their care after day 101 apply for Medicaid.

If your break in skilled care lasts more than 30 days, you need a new 3-day hospital stay to qualify for additional nursing home care. The new hospital stay doesn’t need to be for the same condition that you were treated for during your previous stay.

If your break in skilled care lasts for at least 60 days in a row, this ends your current benefit period and renews your nursing home benefits. This means that the maximum coverage available would be up to 100 days of nursing home benefits.
 
MOON -  Medicare Outpatient Observation Notices was passed into law on March 8, 2017.  Moon law requires the hospitals to inform the patient whether they are being “observed” (outpatient) or “admitted” (inpatient) to the hospital. Most people believe that if they stay overnight at the hospital or are moved from the emergency room to a hospital room, they have been admitted to the hospital.  However, this notation that you are admitted to the hospital just because you stayed overnight is wrong.
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Patients must be informed of their status by the hospital within 36 hours after the observation services begins.  The hospital must provide the patient or the patient’s agent a form which may either be printed or sent electronically, but the patient must then receive a physical copy of the signed acknowledgement.  Hospital staff must also verbally inform patients about how Medicare may handle their observation status.

Obviously, this will assist the patient when deciding if they will continue to receive care knowing their out-of-pocket cost could rise. Medicare Part A doesn’t cover outpatient services (observation).  Medicare Part B may require copays for certain outpatient hospital and physician services after the deductible.  Outpatient observation services do not count toward the 3-day patient’s hospital stay for nursing home care.
 
 

On August 1, 2014, Wisconsin changed its estate recovery program.  The Wisconsin estate recovery program seeks repayment for the cost of certain long term care services paid for on behalf of Medicaid.  The recovery is made for the estates of the person who received Medicaid (member), the spouse’s estate, non-probate property, and liens place on their homes.  Recovery is not made during the lifetime of the member or the member’s surviving spouse or their dependents.  Instead, recovery is made after their death or when they no longer need the assets.

The state will recovery the repayment from the following assets:

1,         Joint tenancy property and tenant in common - value of the member’s interest for jointly owned property is the percentage interest attributed to the member when Medicaid eligibility was determined or, if not determined at eligibility, the fractional interest the member had in the property at his or her death.
 
2.         Life Estate - the value is the percentage of ownership based on the member’s age at the date of death, according to the life estate tables used for Medicaid eligibility.
 
3.         Life Insurance Policy – any amount up to the value of the money paid for medical cost.
 
4.         Marital Property - 50% is allocated for marital property value
 
5.         Revocable Trust -  any amount up to the value of the money paid for medical cost.
 
6.         Tax Equity and Fiscal Responsibility Act Liens – The state may still file a lien on the property even if the member is survived by: spouse, child, if the child is any of the following: under age 21, or blind, or disabled.  However, the state will not inforce the lien while the above survivors are alive.
 
7.         Other Non-Probate Property (transfer on death deeds, payable on death accounts, transfer on death accounts, and beneficiary designation) – any amount up to the value of the money paid for medical cost.
 
8.         Probate Estates - The probate court will not allow a claim on the estate to be paid if any of the following survives the member: spouse, child, if the child is any of the following: under age 21, or blind, or disabled.
 
9.         Homestead property even ones that are being sold on a land contract - any amount up to the value of the money paid for medical cost.
 
The amount recovered by the state will depend on when the assets was obtain, how the assets is titled, and the amount the assets is worth when the member passes away.  The state may recover the total amount that was paid for the medical needs from any of the above items.
 
The state may not put liens on property located outside of the state, but they will try to negotiate a lien on that property.
 
The state will recover any funds that remain from a burial trust after costs have been paid.  This include all irrevocable funeral trust (insurance policy) which has been created for the member.
 
Heirs, guardians, and trustees of revocable trusts created by a deceased Medicaid member must notify estate recovery program before transferring any of the deceased’s property through a Transfer by Affidavit ($50,000 and under). The heir, guardian, or trustee must send a copy of the affidavit to the state by certified mail, return receipt requested. Examples of property include bank accounts (savings or checking); postal savings; credit union or building and loan shares; contents of safe deposit boxes; savings bonds; stocks and other securities; promissory notes and mortgages which are payable to the applicant/member and negotiable; real estate; funeral trust, etc.
 
Estate recovery is different for people who are survived by a spouse, child, if the child is any of the following: under age 21, or blind, or disabled, and Native Americans. Always seek legal advice before transferring any assets from a deceased person who received government benefits for medical assistance.
 
 
 
 

​Medicaid (Title 19) is a joint state and federal program that helps with medical costs.  A person must qualify with both their income and assets.  For the purpose of this article, the focus will remain on long term care in a nursing home setting.  

Medicaid will require a person to prove what their assets and income are.  Assets include but not limited to: vehicle title/registration, providing copies of your bank statements, property tax bill/deed, life insurance, annuities, stocks, bonds, etc.  This include the assets that are in your name sole, your name jointly, in your revocable trust, and any assets that your spouse has in their name, even if it is solely in their name.  It does not matter if you have signed a prenuptial agreement and you do not own the assets.  Medicaid does not care about prenuptial agreement when they are determining what assets you own.  If your spouse owns the asset you must list it on the application.

It is very important to remember that the state may ask you for documents from the 5 years previous to you submitting your application and being approved for Medicaid.  This is called the 5-year look back period.  The state is making sure you did not give away any of your assets or income for less than fair market value.  This also includes any assets and income your spouse may have given away.  If you did give away assets or income for less than fair market value, then you divested this amount and you will not be qualified for an amount of time.  The amount of time that you do not qualify for Medicaid depends on the value of the assets and income you gave away.  In addition, if you or your spouse try to avoid receiving assets or income that you or your spouse is entitled to, this would be considered a divestment. There is also a 5-year look forward period, where the spouse at home is not allowed to give away any assets for less than fair market value, 5 years after their spouse starts receiving Medicaid. So for 10 years DO NOT give away assets or income for less than fair market value.

It is very important to save receipts for items that you have paid for in cash.  If you take a lump sum from your bank account or other financial investments, Medicaid will want to know what you spent the money on.  You will need to prove that you did not give away that lump sum and that you spent it on yourself or your spouse or your dependents.  The easiest way is to keep all your receipts in an expandable folder. You might not need them for tax purposes but you will need them for Medicaid. Most likely you will not be the person who is completing the application for yourself. It will be your spouse or your children or your agent.  The person completing your application will need to know what you spent the money on.  It is hard enough to remember what money was spent on last week much less what it was spent on 5 years ago.

Almost every year Medicaid changes the amount for spousal improvement.  For the year 2018, a spouse may keep up to $123,600, but they must have more than double that amount, $247,200 and then spend down to the $123,600.  If their combined assets are between $247,200 and $100,000 the spouse may keep half of that amount.  If their combined assets are under $100,000 then the spouse may keep $50,000.  The spouse that goes into the nursing home may keep $2,000. 

There are exempt assets like: house value $750,000 or under, 1 vehicles, personal items, and burial arrangements.  The spouse at home may also have an income up to $3,090.00 (2018) after an allocation of income from the spouse in the nursing home.  Although the spouse at home may only allocate some of the income from the spouse in the nursing home, if the spouse at home has their own income above $3,090, they do not need to give the amount above $3,090 to help pay for the cost of the nursing home.
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This is just a brief summary of the Medicaid laws.  Medicaid laws are very complex.  Many times estate planning laws, Medicaid laws, and IRS codes conflict with each other so that if you follow one of the laws you could cause problems for yourself under the other laws. An example is if you were to give away $14,000 under the IRS gift tax you would not pay any taxes, but if you gave away that amount and then applied for Medicaid within 5 years the gift would be a divestment.  The gift was fine under IRS code, but not for Medicaid purposes. This is why you should always seek advice from lawyers, accountant, and financial advisors to navigate your way through the estate planning laws, Medicaid laws, and IRS codes.

A “life estate” is when a person(s) owns property during their lifetime. They are called “life tenants”. The life tenant has the right to use the property, live in the property, control the property, and receive any rent from the property until they pass away.  The life tenant is responsible for the taxes, insurance, and maintenance of the property during their lifetime.

After the life tenant passes away the property is transferred to the beneficiaries which are called “remaindermen”.  The transfer is made without having the property go through probate court. 

During the lifetime of the life tenant, the life tenant can’t mortgage the property without the remaindermen agreeing to the mortgage.  Most banks will require the remaindermen to sign all mortgage documents.

Also, the life tenant is not allowed to sell the property without the remaindermen agreeing to the sale.  If all of the life tenants and remaindermen agree to sell the property, the remaindermen would receive a portion money from the sale.  Please note the amount that the life tenant will receive from the sale has difference values depending on why they are selling the property.  If the life tenant is concerned about Title 19 (Medicaid for the Nursing Home), the Medicaid life tenant table requires the life tenant to take a greater value then the IRS requires on the IRS’s life tenant table. It is very important to determine how to split of the proceeds from the sale of the property because it will affect all parties differently, under the Medicaid and the IRS tables.

Life estate may be a valuable tool in both estate planning and Medicaid planning.  For estate planning the property will avoid probate and will avoid capital gains if it is transferred at the life tenant’s death and not sold during their life time.  For taxes purposes, the remaindermen will take the property at the value of property at the date of death of the life tenant.  The remaindermen will not take it at the value the life tenant purchased the property and will receive the step-up in basis.  This means the remaindermen will not pay capital gains taxes on the property when they become owners.   However, the basis of the property at the time they became owners and the value of the property when they sell it could cause them to pay capital gains or receive a loss.

For Medicaid purposes, a life estate may protect up to 100% of the value of the property from a Medicaid lien or spend down. If the life tenant gifted the property away before August 1, 2014 and the life tenant did not apply for Medicaid for 5 years from the date of transfer, it would be 100% protected from a Medicaid lien or a spenddown.   The 5-years is known as the 5 year look back period where if you gifted away any assets for less than fair market value it is considered a divestment and you may not qualify for Medicaid. If you created a life estate after August 1, 2014 and made it pass the same 5-years look-back without applying for Medicaid then a portion of the value of your property would be protect.  Medicaid may still put a lien on the property for a portion of the value that the life tenant is entitled too.  The amount is based off of Medicaid table, which calculates the lien based on the life tenant’s age and the value of the property.

There are always problems with everything in life and that is true with life estates.  I already mentioned that a life tenant can’t sell the property or take out a mortgage on the property without permission of the remaindermen.  Some additional problems are related to the remaindermen’s interest.  Because the remaindermen have an interest in the property, if the remaindermen go through a divorce, personal injury, court case, or bankruptcy a lien could be placed on the property.  The creditor will not be allowed to force a sale of the property because the life tenant still has a right to use the property until they pass away.  Also, that means the creditor can’t not enforce the lien until the life tenant passes away.

Another problem arises when the life tenant is in the nursing home and on Medicaid.  If the life tenant is single then their assets are at $2,000.00.  They probably do not have any money to pay the taxes, insurance, and the maintenance on the property.  That means the remaindermen will need to pay those costs until the life tenant passes away.  Do the remaindermen have the money to do that?  Also, things like snowplowing and other yard work need to be taken care of.  The remaindermen might not live in the area or have money to hire someone to do that. Other bills that need to be taken care of like water, electricity, and heat. It is never a good idea to leave a property vacant for any period of time.  If the property is rented, the income from the rent must be given to the life tenant which could affect their Medicaid benefits.  If the parties agree to sell the property while the life tenant is still alive, then the life tenant will need to receive some of the proceeds which could affect their Medicaid benefits.  The sale during the life of the life tenant will also cause tax implications and the step-up value will be lost.
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Life estate may be a very valuable tool in estate planning and Medicaid, but it may also cause problems if it is not done right.  There are three very complex laws to consider: tax laws, Medicaid laws, and estate planning laws.  It is always best to speak with a lawyer and an account who knows the laws before you create a life estate.