Tag Archive for 'medicaid liens'

Protect Your Home From Medicaid Liens – Part 3 (May 2010)

Published
by
Sanford Okura
on May 21, 2010
in Medicaid and Nursing Home Costs
. 6 Comments Tags: , , , .

PROTECT YOUR HOME FROM MEDICAID LIENS (PART 3)

Last month and the month before, I explained how to protect your home from Medicaid liens.  In my April column, I described how a parent can transfer the family residence to the children, and keep a “life estate.”

The life estate allows the parent to continue to live in the home for life.  If the parent goes into a nursing home and receives Medicaid help, the government can still put a Medicaid lien on the property.  The lien is like a mortgage.  The government uses it to secure repayment of all the payments it made to the nursing home on behalf of the Medicaid recipient.  However, the Medicaid lien attaches only to the life estate.  When the parent dies, the life estate disappears.  The children then receive the property free and clear of the lien.  I know this works.  Our law firm has used this technique for hundreds of clients.  When the client passes away with a Medicaid lien on the life estate, we contact the Attorney General’s office, prove to them that their lien was only on a life estate and that the life estate holder has died, and ask them to remove the lien.  So far we have been successful 100% of the time.

Some people have concerns about the life estate.  I will now discuss some of these concerns.  Suppose mother transfers the residence to daughter and reserves a life estate.  What happens if the daughter dies first?  The first problem is that if the daughter dies, her ownership interest in the residence will have to go to court for probate.  That problem is easily solved.  Instead of having mother transfer the property directly to her daughter, have the daughter first set up a Revocable Living Trust for herself.  Then mother can transfer the property to her daughter’s Revocable Living Trust, and keep a life estate for herself.  If the daughter happens to die first, there will be no probate.

A more serious problem is this:  what if the daughter dies first and her share of the property goes to her husband, who remarries? When he dies, it goes to his new wife instead of to the grandchildren.  Or what if the daughter has a car accident and is sued, or has serious financial problems or goes through bankruptcy?  The daughter’s share of the property is taken away by a creditor, and when mother dies, the property goes to the creditor. Or what if the daughter gets a divorce, and the divorcing husband tries to go after part of the property?

Don’t worry!  There is a way to protect against these problems.  This is what you can do.  Instead of transferring the property directly to your son or daughter, set up an irrevocable trust.  Your son or daughter can be trustee of the irrevocable trust.  You transfer your property to the irrevocable trust, but keep a life estate.  The irrevocable trust can say that if your daughter dies before you, the property goes to her children rather than to her husband.  The trust can also protect the property from divorce.  The irrevocable trust can also say that if the son or daughter is sued, the person suing the son or daughter cannot touch the property in the irrevocable trust.  The parent can safely live in the house all of his or her life.  When the parent dies, then the property is transferred from the irrevocable trust to the child or children inheriting the property.  If you prefer, the trust can be a “generation skipping trust” and keep protecting the property for the child in case the child gets a divorce or dies with lots of assets.

If you have been afraid to use the life estate technique because child might die, get divorced, or be sued, there is no need to worry.  You can transfer your residence to an irrevocable trust, keep a life estate, and sleep peacefully at night.

OKURA & ASSOCIATES, 2010

ESTATE PLANNING ATTORNEYS



Protect Your Home From Medicaid Liens – Part 2 (April 2010)

Published
by
Sanford Okura
on April 16, 2010
in Medicaid and Nursing Home Costs
. 20 Comments Tags: , .

PROTECT YOUR HOME FROM MEDICAID LIENS (PART 2)

Last month we discussed the dangers of having the government put a Medicaid lien on your home and property if you end up in a nursing home.  Remember, a “revocable living trust” cannot protect your home from nursing home costs.

Some senior citizens who are worried about Medicaid liens just give the house to the children.  I do not think this is wise.  There are many cases in which the parents gave the home to the children, then the children kicked the parents out of the home!  Even if your own child would never kick you out of your home, maybe your son-in-law or daughter-in-law would.

There was a case in Honolulu in which an elderly father and mother had only one son.  The son was married but had no children.  The parents went to a lawyer  and gave their home to their son.  They kept living in the house.  The son and his wife got into a terrible car accident.  The son died first.  Then the son’s wife died.  When the son died, the house went to his wife.  When the wife died, the property went to her parents!  Her parents lived in Germany.  The couple in Germany sold the house!  The elderly couple in Hawaii were kicked out of their own home in their old age!  Because of cases like this, I do not recommend that you just give your property to your children.

In my opinion, the best way to protect your home from Medicaid liens is to give the property to your children, but to keep a “life estate.”  Keeping a “life estate” means that you legally own the property as long as you are living.  Nobody can kick you out.  Yet, you have legally given away a “future interest” in the property to your children.  This means that your children already own the property now, but cannot use it while you are living.  If you were to pass away, the children would automatically be the full owners of the property.

If you give your home to your children (or other loved ones), but keep a life estate, these are some of the consequences:  1) you cannot take the property back unless your child agrees; 2) you cannot mortgage or sell the property unless your child agrees; 3) if you do sell the property while you are living, you will get only part of the money from the sale, and your child will get part of the money; 4) when you die, the value of the property will be counted with your other assets to see if you have more than $1 million (if you do, there may be an estate tax.)  5) If you apply for Medicaid within 5 years, there will be a penalty period ( a period of time during which Medicaid will not pay nursing home costs).

There are several advantages to giving away your property while you are living, but keeping a life estate:  1) you will still be entitled to the homeowners exemption from property tax; 2) you can live in your home for the rest of your life; 3) there will be no probate of your home when you die; 4) a Medicaid lien cannot take the property away from your children; 5) when you die, the property gets a “stepped up basis” so that if your children sell the property, they will pay little or no capital gains taxes (because of the 2001 Tax Act, there will may be no stepped up basis if you die in the year 2010.)

If you already have your property in a revocable living trust, you can still use the life estate technique.  You just take the property out of your revocable living trust, put it back in your own name, then give it to your children, keeping a life estate.  If more senior citizens did this, more children would be protected from Medicaid liens on the family home.

OKURA & ASSOCIATES, 2010



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