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SUCCESS STORY OF THE MONTH – THE WORLD ISN’T ALWAYS PERFECT

This story is an illustration of some of the many thoughts that should be considered even if one has a small estate. In this case, the client’s major asset is her home that was deeded to her by her six siblings as it was their dad’s wish that the client be able to live in the home for her life. The dad did not have a Will (so it passed to all of the children under the laws of intestacy). The client, who has never been married or had children, also does not have a Will and has been recently ill. If she had no Will at the time of her passing, the home would go to her closest relatives (her siblings) by state law which is what she desires – so is that all that should be considered? Here are but a few of the items that need to be considered since the world isn’t always perfect:

  1. Does client have debts?

If the client has debts and doesn’t have a Will, then there has to be an heirship determination. This would involve not only having an attorney for the heirs, but the court would also appoint an attorney for the unknown heirs. An administrator would be appointed who would have to get the permission of the court prior to selling the house. Furthermore, the administrators would have to pay all the debts and prepare an inventory and do an accounting before closing the Estate. Presently, the client does have medical bills. So if she doesn’t do anything, it will cost thousands of dollars in legal fees prior to funds going to the rightful heirs. Obviously she should do something that is more cost efficient. 

  • Does the client have sufficient income or assets or insurance to pay for long-term care?

In this case, the answer is no. The major asset she owns is the home. Although long-term care Medicaid will consider the home as a non-countable resource (assuming the equity value is under $585,000), the state has a right to make a claim against her home to the extent Medicaid benefits are advanced if the home passes by a Will or intestacy. The client is a senior citizen. If she is worried about a potential claim against the home (or if her heirs are worried) if she needs long-term care, then a Ladybird deed or a Transfer on Death deed could be considered since the property would not pass by probate (Will) and Medicaid only pursues a claim if the home passed by Will or intestacy.

  • What if a potential beneficiary becomes disabled?

If one of the client’s six siblings is an outright beneficiary or grantee and is disabled at the time of client’s death, the beneficiary may lose means-tested benefits of their own. Furthermore, if the sibling is disabled and has no power of attorney, guardianship (a time-consuming and costly process) may be needed so that the property could be sold since the disabled beneficiary needs an authorized representative. This would result in a long delay in selling the property after client’s death to the detriment of the surviving siblings since they would all have an interest in the property.

  • What if the beneficiary/grantee dies before client?

If one of the siblings is listed as a grantee of a Ladybird deed or Transfer on Death deed and dies before the client, the other surviving siblings may become partners with the heirs of the sibling who predeceased client. Even if the six siblings could always agree (on whether to sell at an agreed upon price, or to mortgage or lease the property), it is likely that odds for agreement will decrease when heirs of the deceased sibling become an owner.

  • What if a beneficiary/grantee has creditor issues?

If there is a lawsuit or judgment against one of the siblings who was to be the grantee of a Ladybird Deed or Transfer on Death deed or if one was a beneficiary or heir, then the sale of the property after the death of the client could be delayed until the creditor issue was resolved.

  • Is there a way where all six siblings (and possibly more interested parties) could get their share without having to worry that all are needed for agreement in handling the sale of the property?

Yes. The grantee of the Ladybird Deed (an enhanced life estate deed) or a Transfer on Death deed could be a trust whereby only one or two of the siblings could be (as a Trustee) in charge of selling, leasing or mortgaging the property. If Medicaid wasn’t an issue, the Executor alone could sell the property.

  • What if client is not concerned about Medicaid estate recovery?

Then either a Will or a Revocable Living Trust could be considered. As mentioned above, if the property went by Will then Medicaid could pursue estate recovery to the extent benefits (such as care costs and medications) are advanced. If the home was placed in a revocable trust, then the home would count as a resource resulting in Medicaid ineligibility.

  • How can I protect a disabled beneficiary?

A special needs trust could be a part of the Will or trust of the client which protects any beneficiary, even if not disabled now, if disabled at the time of client’s death. However, if the client was married, a special needs trust cannot be used in a living trust for the benefit of a spouse under the Medicaid rules.

  • How can I protect a beneficiary who has creditor issues, etc.?

A contingent irrevocable trust could be created within the Will or Revocable Living Trust of the client to protect a beneficiary who has creditor issues or is a spendthrift or has an addiction issue or who is a minor.

These are some of the basic issues (there are other issues) to discuss with client to determine what is important to the client. The solution in this case is for the client to sign either a Ladybird deed or a Transfer on Death deed (to avoid potential Medicaid estate recovery) whereby a Revocable Living Trust would have only one or two of the siblings as Trustees (to reduce risk of disagreement). The trust would then have contingent trusts if a beneficiary was disabled or had creditor problems or was a minor and to clarify what happens if one of client’s siblings predeceased client. She loved her family – so she wanted to protect them from bad things occurring.

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

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