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SUCCESS STORY OF THE MONTH – USING DIFFERENT LEGAL TOOLS (LADYBIRD DEED, REVERSE MORTGAGE AND REVOCABLE LIVING TRUST) IN THE TOOLBOX

Client had created a revocable living trust several years ago prepared by another attorney. The most common reasons for such a trust is to avoid probate (the laws that govern the probate process which is the process to determine if the Will is valid and who has authority to act on behalf of the estate – whether it is to pay bills or how to distribute assets of the estate), avoid guardianship over assets during lifetime (if the person loses mental capacity), privacy (if you have a Will, then the Will and the inventory of the assets to pass by probate may be of public record which is not the case if you have a trust), in addition to many other reasons.

Although the client had a trust, it was never funded (the client’s assets were never re-titled into the name of the trust). Usually failure to fund the trust is the biggest mistake when trusts are prepared. However, in this case, if she had deeded her homestead into the revocable living trust, then she would have had to take the homestead out of the trust before being eligible for long-term care Medicaid (to help pay for her nursing home care costs) since a homestead is exempt (assuming the equity value is under $585,000 if the Medicaid applicant is single, although no limit if married) if it is not held in a revocable living trust.

The client presently lacks mental capacity. As a result, we were contacted by her agent under her durable (which means it is good even when she is disabled) power of attorney. The power of attorney had to be reviewed prior to speaking to the agent to confirm the powers granted by the principal (the client).

Although the home is a non-countable resource in determining Medicaid eligibility, the state has a right for reimbursement against the non-countable resource (in this case, her home) of the Medicaid recipient to the extent Medicaid benefits (i.e., the nursing home and the client’s drug costs) were advanced by the state during lifetime. After the death of the Medicaid recipient, the state has a right to make a claim against such non-countable resources if the resources pass by the Medicaid recipient’s Will or by intestacy (if one does not have a Will). Of course, if the home was in a revocable living trust, then there would not be eligibility as mentioned above. As a result, the power of attorney needed to be reviewed to see if the agent had the authority to do a Ladybird deed which is an enhanced life estate deed (since it was enhanced, there is no transfer penalty for Medicaid eligibility purposes) since a Ladybird deed avoids probate and thus avoids a successful claim by the state under present Texas Medicaid estate recovery rules. Since the power of attorney did grant the power of prepare the Ladybird deed, a Ladybird deed was signed by the agent to avoid Medicaid estate recovery. In order to be consistent with the intent of the client and to make sure there was no interference with whom the client wanted as her beneficiaries (her four siblings), the revocable living trust was to receive the property at her death under the Ladybird deed. Also, the power of attorney needed to be recorded under Texas law to show there is proper authority for the agent to act and so there would not be a break in the chain of title (which would happen if the power of attorney wasn’t promptly recorded).

Although all four intended beneficiaries could have been named individually as grantees (the one to receive the property) of the Ladybird deed, it was advised that the trust be named as the beneficiary since it is often difficult for four people to agree on whether to sell the property, the sales price, etc. – not to mention there is increased chances that something bad could happen (creditor issues, death prior to the client resulting in more owners of the property, disability of one of them, marital problems of one of them, etc.) which are avoided by having the trust as the beneficiary.

Finally, one of the siblings (who was named as one of the beneficiaries of the property under the trust) wants to continue to live in her sister’s (the client’s) home after her death. Although the other beneficiaries have no problem with that, they would be like each paid their respective ¼ interest after the client’s death. However, the sister who lives in the home has inadequate assets to pay the others. Since all beneficiaries trust each other (otherwise they would need an agreement), they have all agreed (that if they survive the client and after they receive their interest in the home) to deed their interest to the sister living in the home who would get a reverse mortgage (since she is over 62) to pay the others their share.

As a result, the achieved goals of the client were met – to avoid Medicaid estate recovery, not jeopardize Medicaid eligibility, avoid probate, avoid the risk of creditors, marital issues, disability, death or disagreement of beneficiaries, and have one beneficiary be able to stay at home as her homestead while paying the other beneficiaries their share although she had inadequate funds of her own. It is simply knowing the various tools in the toolbox to achieve the desired goals.

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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