Enhanced Life Estate Deed aka a Lady Bird Deed

In this episode, Lisa Shoalmire and John Ross discuss how to pass on the home to heirs and beneficiaries in a manner that avoids any liens or problems at death in passing from one generation to the next.

Episode Transcript
Lisa
Welcome back everyone to another edition of Aging Insight. I'm Lisa Shoalmire and I'm here with my partner, John Ross, and we are here to bring you a weekly information show so that you can have your questions answered about issues that people mostly encounter as they get a little older and they start thinking about leaving that legacy behind, taking care of their families, aging in place, how they're going to finance their retirement and their aging processes. And so Aging Insight is here to do just that. Give you some insight into this season of life. So we're glad you're here with us.
John
That's why we're here. We know that you can navigate through this. But we also know that you're gonna need a little guidance. There's just so much to it. There's so many pitfalls, and if you don't know the best way to get through there, you're just not gonna make it on your own. So we wanna be your partners to help get you through this and that's why we do this show. That's why we're here. And I will tell you, I bet if I were to reach through the camera and ask you personally, for most of our clients, Lisa, I would say the biggest asset they have is their home.
Lisa
Oh, yes. By far.
John
For the vast majority of the clients that we deal with, their single biggest asset is their home. Now, some people have other assets. They might have some savings and some IRAs and things like that. And sometimes they have quite a bit of that. But something about that home.
Lisa
Well, you know what they say John, there's no place like home. [chuckle]
John
Well, that's right. And that home is so tied up in our spirit of the American dream of home ownership, of independence. And so as we get older, one of the things that we see a lot of people get concerned about is their home. What's gonna happen to their home? Where is it gonna go? Is the home protected? And the big question, is somebody gonna try to take it from me? Am I gonna lose my home because of something?
Lisa
Yeah. And so most frequently, when we have people come in and the home is often one of the first things on their mind. Often, this has been a long-term investment for them. Many folks have successfully paid off a 30-year mortgage, and so now in their retirement years, they're sitting inside a home that's paid for, that they've maintained, that they raised a family in, they've built memories in, and so it's really a valuable asset to them. And so, one of the first questions is, "Well, when I die, I want my kids to get my home." Or "I wanted my will to say that Suzie gets my home and, Bobby, he'll never come back to this area, so I'm gonna take care of him some other way." But always, as we discuss wills and what happens to your assets after death, the home is almost always at the top of that list. And what I wanna make sure of is that there is a home, the way you think of it, the way you know it, to pass to those heirs and beneficiaries.
John
Yeah. And that's where we start running into some issues. 'Cause I bet there's some of you out there who were saying, "You know, John, I heard that if you ever go to the nursing home, they're gonna take your house." Or that the nursing home is gonna take the house, that the state is gonna take... That somebody is gonna try to come and take your house if you ever need any sort of long-term care assistance. Well, like so many rumors out there, it's mostly rumor, but there's a grain of truth. And it's that grain of truth that is pretty dangerous. And that grain of truth, first of all, if you ever need long-term care and you can afford to pay for it yourself, just by paying cash, for example. Well, nobody's going to take your house.
John
Nursing home doesn't want your house. They're not gonna make you sign over title or anything. And if the state is not paying for your care, they don't want your house either. So if you can pay cash or if you have long-term care insurance to pay for that care, nobody's going to bother your stuff. But because the cost is so high, with the average nursing home cost running around $5,000 a month now, that cost is so high that for many people, there comes a time when they have expended all of their cash. And when they have gone through all of their cash, now this is where they're worried, "Am I gonna lose the house if I don't have anymore cash?".
Lisa
Right. Well, and the good news here is that a home that is your primary residence that has a value of less than $535,000 is an exempt asset while you're living. Nobody touches it, nobody makes you sell it, nobody puts a lien on it. So while you're living, this is a protected asset. So that's the good news. But, John, like you just said a moment ago, when there's a little kernel of truth when we start talking about the State coming in and taking a home or putting a lien on a home, so I think we should probably dig into that and how best to protect your home when we come back right after this break.
John
Welcome back to Aging Insight everybody. I'm John Ross here with Lisa Shoalmire and today we're talking about the home and not just the home, but we're gonna be talking about something very specific about the home and a way to protect the home, a very powerful tool that is out there. And so before we get to all the details, we gotta give you a little background. We gotta know why this is important. And the reason it's important is because if you get to a point where you need something like nursing home care and you're unable to afford it with your income and your cash resources, you may need something like Medicaid to pay for that care. And under the Medicaid rules, you can have a house worth up to $535,000 and actually that number goes up every year. So next year, it will be even more than $535,000. So you can have a house and a land that it sits on, whether that's a big house on a little bit of land or a little house on a whole lot of land doesn't matter. The house and the land that it sits on does not count towards your eligibility. So in other words, Medicaid can pay for your care, but you still have that house, "comma, but."
Lisa
"But," that's right. So while you're living, the house is considered an exempt asset. But if you do receive assistance for that long-term care that you need, one of the first questions I get from families are, "Well, who pays the taxes and the maintenance and all of that on the house while mom or dad are receiving that long-term care?" Frankly, I just have to tell you that mom and dad's income is not going to be available to pay for the maintenance and the upkeep and the taxes and insurance on that home. So when you're thinking about preserving that home for your heirs and beneficiaries, we need to look at, if long-term care is needed for the senior member of the family and the owner of that home, what kind of arrangements can be made to cover that home while that owner is receiving long-term care? So that's one aspect. So we don't wanna lose that house because we didn't pay the taxes.
John
Right. That's certainly right.
Lisa
But you know what? John was talking about a moment ago is that home is not a counted asset for your eligibility for long-term care while you're living and receiving that care, "but" and that's where the comma came in.
John
Yup, yeah. Because with Medicaid, we have four little letters, MERP, the Medicaid Estate Recovery Program.
Lisa
Yeah, and so this is the program and this is where that kernel of truth comes in that people get the idea that the nursing home or the State will come in and take your house. Essentially, the Medicaid Estate Recovery Program has one job. And that job is to seek reimbursement to the State's Medicaid System for payments that have been made on behalf of nursing home residents who are now deceased. So basically, a collection agency is out there looking to collect on assets that may have been owned by that nursing home resident during their lifetime such as their home. And one of the big tools that this collection agency uses to get reimbursed for that care is they will put a lien for the value and the cost expended on the care of the nursing home resident. They'll put a lien on the house, so the heirs and beneficiaries, they can't get the house free and clear until that lien is paid off and released. And so that's where we get the idea of the state or the nursing home is gonna come in and take your house.
John
Right. But the key with all of these is that that claim arises at death. So if I had a house and I was in the nursing home and Medicaid is paying for my care, when I die, the State wants to get paid back. If I still have this house, they think they ought to be able to use my house to pay themselves back, and that's the idea. The key in all of this is that Medicaid has a claim against my estate and we've done a separate episode on probate and property that passes through probate and property that does not pass through probate. And the reason that this is important is because when Medicaid says that they have a claim against your estate, that means they have a claim against assets that are part of your probate estate. But that also means that they don't have a claim against assets that are not part of your probate estate. In other words, assets that transfer automatically at death. So if you think about things that have, say, a named beneficiary, things that are owned as joint tenant with right of survivorship, these are examples of things that pass automatically to that beneficiary. They're not part of your probate estate and if they're not part of your probate estate, Medicaid can't come and get it. But, Lisa, how many houses do you see out there that have a beneficiary on them?
Lisa
Yeah. No, I don't recall at closing, when you close a house, that they make that option available to you.
John
Right. So naming a beneficiary on a house is not quite as easy as it is naming a beneficiary, say, on a life insurance policy. But just because it's not easy doesn't mean that it can't be done. There is a particular type of deed that you can do where you are saying, "Here's who's going to get my property when I die. But as long as I'm alive, it's my house. And I can live in it, I can use it, I can rent it, I can sell it, and if I sell it, I can even keep all the money from the sale. So it's my house and I'm in full control, but when I die, here's who I want it to go to. And there's a technical name for that type of deed. It's what's called an Enhanced Life Estate Deed. But there's kind of a rumor around Texas anyway, that the first person that ever did this kind of deed was Lady Bird Johnson. That would be President Lyndon Johnson's wife. That supposedly she was the first one to do one of these deeds and so that's why they call it a Lady Bird deed. Now, that's not really true.
Lisa
We're turning into myth busters now.
John
Yeah, we're turning into myth busters. In fact, there was a professor at Texas Tech University who was the one that came up with this concept of the Enhanced Life Estate Deed, and a professor at Texas Tech, and when he gave the example in class, he used Lady Bird Johnson as his example. And from that, we've kind of gotten this rumor that maybe Lady Bird Johnson had actually done it. She didn't. That's just rumor. But regardless of all of that, this type of deed has now become known as a Lady Bird deed. And this is a way that you can name a beneficiary on the house so that when you die it passes automatically to the people you leave behind. And, of course, if it passes automatically, it's not part of your estate. If it's not part of our estate, Medicaid can't come and get it. So a pretty powerful tool. But like so many powerful tools, if you don't know how to use it correctly, you'll hurt yourself.
Lisa
Right.
John
So I think we'll take a quick break and when we come back, we're gonna go in to a little bit of detail about the Lady Bird deed, things you should look for, things you should be wary of. So stick around. We'll be right back.
Lisa
Welcome back to Aging Insight. I'm Lisa Shoalmire and I'm here with John Ross, and we are elder law attorneys based here in the Ark-La-Tex. And we're here today talking about typically the most valuable and most important asset that a senior has to pass on to their family and that asset is their home. And so we're talking today about how to pass that home to heirs and beneficiaries in a manner that avoids any liens or problems at death in passing from one generation to the next. And so particularly, we're talking about a deed called a Lady Bird deed. The technical name is an Enhanced Life Estate Deed, but most folks know what a Lady Bird... They call it a Lady Bird deed. Even a lot of attorneys call it. Yeah.
John
Right. That's certainly the common name. And again, what this deed is doing is it's transferring your home so that at your death it passes automatically to the people that you leave behind, the people that you want it to go to. And so while you're alive it's your house. You have all the rights to use, rent, sell, mortgage, all of that sort of stuff just like you do now, but upon your death, it passes automatically. And if it passes automatically it avoids that Medicaid Estate Recovery claim. So a very powerful tool and even a tool that can be done the day before you apply for Medicaid.
John
Lots of people have heard that there's, "Don't I have to get everything done within five years?" Well, yeah. There is a Medicaid rule that says, "You cannot have given away any of your assets within five years prior to applying." But that rule doesn't apply to Lady Bird deeds because of the wording, because you still retain the right to use it and sell it, and keep all the money from the sale. It's not considered a gift. And if it's not considered a gift, it's not subject to that five-year penalty. So a powerful tool here to protect that home but not necessarily a simple one.
Lisa
No. One of the things I like about this tool, this Lady Bird deed, is you said that the property passes automatically at the death of the owner of that home. And so what I like about that is no probate process.
John
Right. Right. Avoids the necessity of probate, at least as it relates to the home.
Lisa
At least for the home, yes. So it avoids probate. So that's a real key to this. But it has to be done correctly in order to get that probate avoidance and to get that protection from perhaps nursing home or other creditors.
John
Right. So you've gotta make sure the wording on the deed is correct. It's gotta meet several specific rules on Medicaid. So this is not the kind of thing that you're gonna wanna get off the internet or at a book in the library. This is a pretty technical deed. The other thing though about this is who you're going to be deeding it to. Because most people would think, "Well, I'm just going to... I want it to go to my three kids and so I'll just do the deed to my three kids."
Lisa
Yeah. So we have Steve, Cindy, and Julie as the three kids who are the beneficiaries of this Lady Bird deed and that's great. So long as at the time of the owner of that home dies that those three kids are still there.
John
That's right. So if you caught our last episode, we talked about protecting the people that we leave behind from things like death, divorce, disability, debts, and things like that. Even if the only asset you have is a home, yeah, a Lady Bird Deed may be the perfect tool to transfer title to that home upon your death so that the state can't get it and so that you can avoid probate. But if the kids themselves are the named beneficiaries, well, those kids' problems could impact their ability to receive that interest that you want to leave behind. For example, what happens if one of those kids predeceases you? Is there interest in your home going to the person that you would have wanted it to? Maybe, maybe not. What if they are in financial trouble, like a bankruptcy? So there's lots of different things that could impact those kids. So a better tool is instead of leaving the house to the kids directly, is to set up a very simple little family trust where you're leaving it to the trust which is for the benefit of those kids, and that way, we're protecting them from these other issues.
John
So now, Lisa, we're talking about the Lady Bird deed, which obviously is a very good and very powerful tool. But by working... Instead of naming individuals as beneficiaries, we name a trust as a beneficiary. Now not only are we protecting that house for ourselves, we're making sure it passes down to the next generation and we can do it in a way that may protect them from any unanticipated consequences later down the road.
Lisa
Right. The thing I love about using this very simple trust in combination with the Lady Bird deed is it's just so flexible. Our senior and our home owner, we do that Lady Bird deed into the trust and if we need to change the terms of the trust later on down the road, we can do that. And we don't have to redo the whole deed, we don't have to refile a bunch of paperwork. It's a very simple process.
John
Right. So again, the Lady Bird deed is a powerful tool. But frankly, the way we like to think of it is it's not a Lady Bird deed, it's a Lady Bird trust because by combining the Lady Bird deed with a simple trust that you are still in control of, we're protecting the house, we're protecting you, we're transferring the assets, and we're protecting those who leave behind just a great simple tool that can last a generation or two. So thanks again, once again for sticking around and listening. We enjoy giving you this information. We know you benefit from it. If you have other questions, of course, you can always reach us every Saturday at noon on 107.1, where we have our live call-in radio program, and that's Aging Insight Radio. There's always resources in our Aging Insight magazine that you can pick up at doctors' offices and in our law firm, and several other places around town. And of course, you can check out our website at aginginsight.com where you can pick up past episodes and past episodes of the radio show and lots of places out there to get information.
Lisa
Well, we appreciate our sponsors here on KLFI that make sure that we can come in to your living room through this fabulous television program every week. So thank you. We'll see you next week.
John
Bye-bye.

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