We all know that the possibility of incurring disastrous Nursing Home costs is the biggest threat to most people’s estates today.  Now that we have an exemption of $5.25 million from estate taxes, only the wealthiest 0.14% of Americans will pay this tax. In other words, 99.86% of us don’t have to worry about the estate tax anymore. What about probate?  You may have heard horror stories from the 1980s about probate costs eating up half of the estate.  Well, the probate process has been streamlined.  We now have informal probate procedures.  The actual cost of probate now usually amounts to only about 1% of the estate value.  So the real danger is the rising cost of nursing and health care.

By now, most of my readers know that the Medicaid government assistance program will pay health care costs for people who are impoverished, and that Medicaid can cover your nursing home costs when you run out of money.  You may have also heard that if you do receive Medicaid benefits for long term care costs, the State of Hawaii will put a lien on your home so that when you pass away they can recover back from the value of your house every penny they’ve spent on your care. What’s the solution?

A lot of people think that the best thing to do is to give their home away to their children or other loved ones 5 years before they might need nursing home care so that they can still qualify for Medicaid benefits and the State can’t put a lien on their property. However, doing this could put you at risk.  What if you give your home to your son and he later kicks you out of your own home?  Even if you have a good relationship with your child, is it possible that your daughter-in-law or son-in-law could be the one to kick you out of your house after giving the home to your child?

Here’s a sad but true story of one local couple who gave their home away without legally protecting themselves adequately.  They had only one son and knew they wanted to leave their house to him when they passed away. They didn’t want him to have any trouble with probate when they died so they went to a lawyer and signed a deed transferring the house to their son while they were still living. A few years later, the son and their daughter-in-law got into a terrible car accident and both passed away—the son first, and then his wife second! Neither of them had a will or a trust.  According to the laws of the State of Hawaii, when the son died, the house went to his wife. When she died shortly after him from the same car accident, HER parents inherited the house. She was from Europe and her parents lived in Germany. When the lawyer called to tell her parents that they inherited a house from their daughter in Hawaii, they said “We don’t need a house in Hawaii” and they SOLD THE HOME keeping the proceeds! This left the local couple homeless in their old age.  This was totally unexpected, but it’s the kind of thing that could happen if you give your home away without protecting yourself.

If you are sure you want to give your home away to a loved one, we usually recommend that you keep a “Life Estate” or the right to live in, use, control, and rent out your home for the rest of your life.  This provides you with several benefits:  1) Nobody can kick you out of your house; 2) You can keep your homeowner’s exemption for county property taxes; 3) It avoids probate because you’ve already transferred the remainder interest to your loved one during life; 4) Your heirs get a stepped-up basis on your home when they inherit it from you after you pass away; 5) If you go to a nursing home and Medicaid puts a lien on your Life Estate, as long as you don’t sell your home during your lifetime, we can get the Attorney General’s office to remove the lien after you pass away without your heirs paying back one red cent!

So you might think that giving away your home to your children or other intended heirs while keeping a life estate for yourself is the best thing to do to plan ahead in protecting your assets from nursing home costs, but next month I’ll reveal to you why giving your home to an irrevocable trust for the benefit of your heirs (while keeping a life estate) is better than giving your home directly to your loved ones.

Before implementing any of these strategies, go see an attorney who specializes in Medicaid Planning to protect assets from nursing home costs to make sure that it’s the best thing to do in your situation.