DOES A LIFE ESTATE STILL WORK FOR MEDICAID? (June 2015)

DOES A LIFE ESTATE STILL WORK FOR MEDICAID?

Back in March, April, and May of 2010, my father wrote a three-part series for the Hawaii Herald called “Protect Your Home From Medicaid Liens.”  It explained that the best way to protect your home is to keep a life estate and give the remainder (or future ownership) away to an irrevocable trust, drafted by a lawyer who specializes in Medicaid Planning—not just estate planning. I know at least one estate planning attorney in Honolulu that has been drafting irrevocable trusts for Medicaid Planning purposes, but his trusts don’t work for Medicaid qualification.  (If you would like to read these articles for background understanding, you can go to http://okuralaw.com, click on “Articles” and search for them in the search box.)

I still believe that for most people who are approaching their senior years, who probably have at least 5 years to plan ahead before needing nursing home care, and who don’t plan to sell or mortgage their home, the above strategy is the best thing to do—with one slight variation:  Don’t keep a full life estate interest in your home.

Recently, the new Deputy Attorney General in charge of Medicaid Recovery for the State of Hawaii has changed the long standing practice of the Attorney General’s office.  For at least the past 20 years, anytime a Medicaid recipient passed away while owning only a life estate in their home, we could get the Attorney General’s office to remove the lien without paying back a penny as long as we could prove that the Medicaid patient only owned a life estate, and he or she has now passed away. This makes sense because upon your death, your life estate ends and disappears, and therefore has no value.  However, for the past few months, the Attorney General’s office has been aggressively going after deceased Medicaid recipient’s heirs when the State had a lien against a life estate in the property.

If you know someone who has passed away with a Medicaid lien recorded against their life estate, please advise the family not to pay the lien off just yet.  We are actively contesting this Attorney General’s claim for several of our clients and we believe that centuries of established common law supports our position and are very hopeful for a positive outcome.  We can help your friends and family too.

This isn’t the first time the State has gotten the law wrong with regard to Medicaid and life estates.  Back in the 1990s my father, Sanford Okura, had to argue with the Medicaid office about how to calculate the value of a life estate and a remainder in the home for my grandmother’s Medicaid application.  He had to show them that they were using the wrong chart to calculate the value and gave the State Medicaid office the correct chart established under Federal Law.  Ever since then they have been using the chart which he provided to them.

In order to address the risk that this new policy may be successful for the State Medicaid and Attorney General’s office, we have been doing a partial life estate for many of our clients in the past few years.  Often we have our client keep only 1/10,000th of a life estate in their property with the following benefits: 1) It still gives you a right to live in the home for the rest of your life and nobody can kick you out; 2) You get to keep your homeowner’s exemption for county property taxes as long as you live there; 3) It avoids probate; 4) When done properly, it still allows for a capital gains stepped-up basis to save on taxes if the property is sold after your death; 5) It allows us to do additional future Medicaid planning at the last minute to save some of your liquid assets such as cash, stocks & bonds, and annuities—even if you didn’t give them away 5 years in advance; and 6) Most importantly, the value of your life estate share is so small, that even if the law were to change to accommodate the Attorney General’s new position regarding collecting liens against life estates, you could buy out that piece of Life Estate and pay off the Medicaid lien for under $50 in most cases—no matter how big the lien amount is.

If you have a full life estate in your estate plan—whether you did it with our law firm or some other—you should come see us to explore the possibility of changing it to a 1/10,000th life estate to further protect your home.

 

© OKURA & ASSOCIATES, 2015

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