Medicaid is an important source of long-term income coverage for Americans who lack access to affordable health insurance. However, to qualify Medicaid, the applicant cannot have transferred property without the last five years. This can complicate matters if you want to leave your house to someone in your will. That is when a Lady Bird Deed can help you out.
A Lady Bird Deed, also known as an Enhanced Life Estate Deed, can transfer title to a grantee while you still have the enhanced life estate in the property. Because you still have control over the property, you will be able to convey the property to someone else (or mortgage it) during your lifetime without the consent of the beneficiaries. The property only transfers after the grantor/life tenant’s death.
Benefits of a Lady Bird Deed
Not all states allow Lady Bird deeds. In states like Texas, it can prevent the state from recovering funds against a grantor who received Medicaid benefits while alive. Additionally, the property is exempt from the calculation that the state makes for your Medicaid benefits.
The property under a Lady Bird deed is not considered probate property. It will not be included in the appraisal of your assets for estate taxes and won’t be subject to a claim for reimbursement in states that make claims only against probate property. Additionally, if the IRS wants to attach a lien to the property, it will likely only happen upon your death.
There are numerous other benefits to a Lady Bird Deed. It lets you to preserve assets for your family and allows you to remain eligible for Medicaid.
Limitations of a Lady Bird Deed
Using a Lady Bird deed is not always advisable. If you have a large unpaid mortgage or lien on the property, or want to leave your house to multiple people, a Lady Bird deed might cause problems. This is particularly important if the potential beneficiaries do not get along and can’t work together to sell the property after you’re gone. In this case, a trust might be a better option than a Lady Bird deed, which is more flexible when it comes to selling the property. Lady Bird deeds also make no provision for the descendants of the beneficiaries you choose who might pass on before you. A living trust allows you to name a successor trustee and a default beneficiary. If the default beneficiary is a close relative, you may also be able to minimize property taxes.
Lady Bird deeds might also be inappropriate for property that has significantly grown in value over time.
Alternatives to Lady Bird Deeds
There are many alternatives to Lady Bird deeds which would allow you to protect your Medicaid estate recovery program for a loved one. A sibling or caregiver exemption allows you to transfer your home to a sibling or an adult caretaker child without a period of Medicaid ineligibility or violating Medicaid’s look back rule. Other options, like an irrevocable trust or long-term partnership program, would also allow you to protect your assets from Medicaid.
A Lady Bird deed is useful in estate planning, but it’s important to make sure it’s right for you. Otherwise, the outcome might cost you money and time.