Estate Planning with a Life Estate DeedEstate Planning with a Life Estate Deed

People are growing increasingly nervous about retirement and healthcare. For good reason. The health insurance market has grown alarmingly costly. As a result, more people than ever are turning their attention to Medicaid – how to qualify and most importantly, how to protect their assets. While much has been written on Medicaid’s eligibility requirements and procedures, most people are still unware of the agency’s greatest concerning and disturbing practice.

For homeowners on Medicaid (you can still qualify if you own a home and use it as your primary residence), there is a grave risk that upon your death, if the state agency cannot recover the amounts they paid out to hospitals on your behalf to nursing homes, doctors, hospitals, etc., from assets of your estate, a sale will be forced on your home in order to secure proceeds to satisfy the agency’s claim. This rule of thumb applies even if you own the property with another person (ie tenants in common).

For individuals approaching retirement age or even persons currently on Medicaid, this news isn’t entirely dire. Chances are you still have time for modest estate planning. If you are planning for homecare in the near future or can imagine circumstances leading to a nursing home residency, you need to start mapping out an estate plan with an estate lawyer to protect your home and assets from the reaching hands of Medicaid. Lien estate recovery is not an exception; it is a rule.

The most popular and well known estate planning strategy is the Irrevocable Medicaid Asset Protection Trust (also known as the “MAPT”). The major upside to trusts is the flexibility in choosing beneficiaries and retaining control of your assets. The downside is that trusts typically cost thousands of dollars to create. Since trusts can be too costly for some people, as an alternative to creating a trust, you may come to consider the notion of a life estate deed. A life estate deed involves the transfer of ownership from your name to someone else. Although you are no longer the owner of the property, you have the legal right to reside in the property for as long as you live. The use of a deed as an estate planning tool can be very tricky and hazardous without experienced legal representation.

The following are some of the pros and cons of creating a deed with a life estate for estate planning purposes:

Life Estate Pros

Based on the foregoing, it may seem that life estate deeds and Medicaid trusts are not typically far off from each other. As such, one may be tempted to ask: why pay thousands of dollars for a trust when the same result can be accomplished with a deed? This is the question that many estate planning clients face. Consider the following downsides to help you learn and understand some of the issues you may face with a life estate deed.

Life Estate Drawbacks

Example: Alex transfers his home to his only son Jason, via a life estate deed. In his mid 60’s, Alex falls in love and marries Anna, who has three kids from a prior marriage. Alex adopts the three children and claims them as his own. Jason’s true intentions are revealed over the years; he’s counting down the days to his father’s death so he can sell the house and make money. Despite Alex’s change of heart, he cannot take back the home. Had Alex placed the home into a trust instead, he could have executed a will disinheriting Jason from his estate and input new beneficiaries in his place.

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The contrast between a trust and a life estate deed is a good example why you should consult with a trust estate lawyer. If your grand strategy is to protect your assets in order to provide for yourself and your loved ones, then the first step is to contact an estate planning lawyer and discuss available options. Call us for a free consultation at 646-233-0826, or send an email to

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