Most people are surprised when they find out how many different ways there are to transfer assets. This is the primary reason why you should work with an attorney to develop your estate plan.
A life estate, for example, is one of the methods that can be utilized to transfer assets. In this post, we will explain the concept of the life estate and help you understand when to use one.
The Probate Process
If you use a will to state your final wishes, an executor, appointed by you or the court, would manage your estate after your passing. This individual is not permitted to dispose of your estate without going through the probate process.
Probate is a legal process that takes place under the supervision of a court. One of the main functions of the court is the proving of the will. During this process the court will examine the will to determine its validity. It is also the time for individuals to challenge or contest the contents of the will.
Another function applies to creditors. The executor must notify creditors about the passing of the decedent, and give the creditor time to seek payment.
The probate process usually takes more than six months to complete. During this time, your assets cannot be distributed to your heirs.
Another drawback of the probate process is the loss of privacy. This is due to the fact that the general public can access all probate records.
Finally, probate is not free. There is an executor’s fee, a filing fee, and fees paid to the attorney and/or accountant hired to assist the executor.
Medicaid Eligibility and Estate Recovery
Elder law attorneys help you prepare for legal and financial challenges you may face later in life. One of those challenges may be the cost of long-term care. The majority of elders will need paid living assistance, and 35 percent of seniors will reside in actual nursing homes.
These services and/or facilities can be very expensive, making it very difficult to pay for out of your own pocket. Medicare is not the answer because it will not cover the care you would receive in a nursing home.
Thus, Medicaid is the widely embraced solution, even though it is a need-based program. Some assets, such as your home, do not count against the $2000 asset limit. However, if you qualify for Medicaid as a homeowner, your home will be in harm’s way after your passing.
The Medicaid program can attach assets that remain in your estate after your death. For example a lien could be placed on your home unless you take steps to prevent that from happening.
A life estate is the perfect way to address the drawbacks of probate and the potential impact of Medicaid estate recovery. If you go this route, you would name a remainderman that would inherit the property after your death.
While you are living, you would continue to live in your home as you always have. Upon your death, the person you named as the remainderman would assume ownership of the home outside of probate, and it would be protected during the Medicaid estate recovery phase.
Word of Caution
If you decide that you want to lease, mortgage, or sell the property, you would not be able to act independently and pocket the profits. You would need the approval of the remainderman, and their share of the profits would be based on the IRS actuarial tables. If you do not want to surrender this level of control, there are other ways that you can accomplish the same objectives.
Take Action Today!
If you know that you have been procrastinating too long when it comes to estate planning, now is the time for action. You can schedule a consultation at our Oklahoma City estate planning office if you call us at 405-843-6100, and you can use our contact form to send us a message.