There are many different ways to facilitate asset transfers, and this is one of the reasons why you should work with an attorney to develop your plan. Each situation is different, and there is no one-size-fits-all solution, so you should take an approach that is ideal for you and your family.
When you are aware of your options, you can make fully informed decisions. With this in mind, we will look at the life estate in this post.
If you use a simple will to facilitate the transfer of your home, the document may be admitted to probate in some situations. The executor that you name would take care of the estate administration tasks, and the court would provide supervision during the process.
Final debts are paid during probate, and the court will determine the validity of the will. If someone wants to contest the will, they could present argument while the estate is being probated.
The executor will identify and inventory the assets that comprise the estate, and they will be prepared for distribution to the heirs. All of this takes time, and the beneficiaries do not receive anything while they are waiting out the probate process.
It will typically take about eight months at minimum, and more complex cases can be stuck in probate for longer periods of time. Probate expenses reduce the value of the estate, and there is a loss of privacy, because the records are available to the general public.
If you create a life estate, you would name someone to inherit the property after your death. This individual would be called the “remainderman,” and you would be the “life tenant.”
You would continue to possess the home for the rest of your life, so nothing would change. After your passing, the remainderman would assume full ownership of the home, and this transfer would not be subject to the process of probate.
There is a potential downside to the creation of a life estate. You would not be able to sell or mortgage the property without the cooperation of the remainderman. Even if they want to go along with the sale, they would be entitled to their share of the proceeds.
This would not necessarily be half of the sale price. The amount that each individual receives would be calculated through the utilization of IRS actuarial tables.
Medicaid Estate Recovery
A significant percentage of elders require nursing home care at some point in time. Medicare will not cover the custodial care that nursing facilities provide, and as you might imagine, they are very expensive.
Medicaid is a jointly administered federal/state government health insurance program that will pay for long-term care. There is a $2000 asset limit, but your home is not considered to be a countable asset with an equity limit of $603,000 this year.
That’s the good news, but the bad news is that there is a Medicaid estate recovery mandate. The program is required to seek reimbursement from your probate estate. As a result, a lien could be placed on your home if it is in your direct personal possession at the time of your death.
As we have stated, the transfer of property through life estate is not subject to probate. If you create a life estate, the remainderman would inherit the property outside of probate, so it would be protected during the estate recovery phase.