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SUCCESS STORY OF THE MONTH – LADYBIRD DEED INTO PET TRUST IS CATS’ MEOW

The goal of a self-proclaimed “cat lady”, who is on Medicaid, is to make sure her 14 cats are adequately cared for after her death. However, her only assets are her home, car and a small bank account. Her home and car are “non-countable” resources for Medicaid eligibility purposes. Although her major resources are non-countable, the government has a right to make a claim against the home and car to the extent Medicaid benefits have been advanced if assets pass by Will or intestacy (without a Will). Presently, she has no Will. As a result, if the client did nothing and the government paid out benefits that exceeded the value of the house and car, then the government could basically take the home and car as repayment for the government funds advanced.

An enhanced life estate deed (commonly known as a Ladybird deed) is a deed whereby the owner of the property retains complete control of the property until the owner’s death. Since the property passes by deed at death (and not by Will or intestacy), it avoids a successful claim by the government for estate recovery under Texas rules. Furthermore, since the owner retains complete control of the property, all favorable tax advantages (i.e., property tax exemptions such as being disabled or over 65 and homestead, a step-up in basis if maintained until death, etc.) are retained. Thus, part of the simple solution is that the client’s home pass by a Ladybird deed. It should be noted that most states do not permit Ladybird deeds to avoid a successful claim by the state. This deed is not penalized under the Medicaid five year look-back rule (where the government penalizes transfers if made within five years of applying for Medicaid) since total control was maintained by the owner. 

Similarly, if the client’s car passed by Will or intestacy, the state could make a claim against such vehicle for repayment of benefits advanced. Under Texas law, the owner of a vehicle can designate a beneficiary through the Department of Motor Vehicles.  See our article “Baby You Can Drive My Car” by clicking here. Additionally, the client can simply have a beneficiary designation (i.e., “paid on death”) of her checking account to avoid a successful claim by the state against the checking account.

Thus, since all of client’s assets will pass outside of a Will and not pass by intestacy, all of her assets could avoid a successful claim by the state.

However, since pets are considered personal property in Texas, the pets cannot inherit the assets of the client. The solution is that the assets can pass directly into a stand-alone pet trust. The pet trust would be drafted so her cats can be cared for as the client desires. For example, the trust would clarify if there is a special diet, toys, regularity of grooming and visits to the veterinarian, living arrangements, etc. It would also name the beneficiary after the death of the last surviving cat and the pecking order of trustees if an institution is not named as a trustee. As a result, the grantee (beneficiary) of the Ladybird deed would be the trustee of the pet trust. Issues such as whether the home could be sold during the lifetime of cats, a potential conflict of interest if the trustee is a beneficiary, compensation to the trustee, etc. would also be discussed and determined pursuant to the desire of the client. In the client’s mind, simple planning will avoid a “CATastrophe”. 

If you would like more information specifically on the differences between a Ladybird Deed and a Transfer on Death Deed click here to read our article that can help you determine which would be the best for you.

If interested in learning more, consider attending our next free “Estate Planning Essentials” Workshop by calling us at (214) 720-0102 or signing up by clicking here.

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