What is the purpose of a life estate?
There are many tools in the estate planing toolkit. You should be aware that you have options for at least two reasons. You want to make the best choices. Avoiding the wrong choices is equally important. Let’s look at some of the pros and cons. There are some hidden problems. A life estate would definitely fit into this category.
People who start to look into the subject of estate planning invariably find out about the legal process of probate. This is a process that takes place under court supervision. This is a lengthy process, and inheritances cannot be distributed until the estate is closed by the court. It is a public proceeding, so anyone can access the records to find out how the assets were transferred.
Another drawback is the expense factor. The executor is paid a fee and there is a filing charge. A probate lawyer and an accountant will be engaged in many instances, and there can be appraisals and liquidation fees along with incidental expenses.
Life Estates
Because of these negatives, probate avoidance strategies are implemented. This is why people use life-estates. You can continue to live in your home for the rest if you use this method. You would be responsible for all costs associated with the home. During your life, they will not have legal access to the home. This transfer would not be subject to probate.
That’s the good news. The bad news is that you would not be able to sell or mortgage the property without the full cooperation of the remainderman.
Plus, your ownership interest would be limited to the right to live in the home for the rest of your life. If the remainderman was to go along with the sale, you would only be selling that limited interest, and the remainderman would have a more significant interest in the property.
Medicaid Planning
A life estate could also be part of a nursing home asset protection strategy. Most seniors will require living assistance. Many will require a level of care that only a nursing home can provide.
These facilities are costly, and Medicare does not pay for long-term care. Medicaid will cover the costs if you are eligible. Many of you may not be aware that Medicaid is a need based program. Medicaid may place a lien on your home if you own it directly. You must act within the five-year period. The life estate must be established at least five years before you apply for Medicaid coverage.
Other Options
It is possible to use a revocable living trust to arrange for the transfer of your home and other property that will comprise your estate. You would be the trustee as long as you were alive, so that you wouldn’t lose control over the assets. You would be the only owner. This type of trust is not suitable for Medicaid planning, as the assets are countable. You can still live in your home and move other assets into the trust if you transfer it into the trust. As the name would indicate, you could receive distributions of the trust’s income, but you would not be able to access the principal.
As long as you fund the trust at least five years before you apply for Medicaid, the assets would not count, and they would be protected during the Medicaid estate recovery phase.
Schedule a Consultation Today!
If you are ready to work with an Oklahoma City estate planning attorney to put a plan in place, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 405-843-6100.
Our firm also has an office in Tulsa, and if you are in that area, the number there is 918-615-2700.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors Read More! Larry Parman, Attorney At Law, has posted the latest posts on his blog.
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