The costs for medical care can be quite high, especially towards the end of one’s lifetime. It’s troubling to think that a good portion of what you have saved up for your children will have to go towards keeping you alive and comfortable in your last few years – and depending on how much you own and what you make in a month, it’s possible you won’t be able to count on government assistance to help you keep some of your hard-earned long-term assets safe for your children.
Thankfully, there is a way to separate yourself from your assets in a way that helps you avail for crucial assistance programs like Medicaid while still making sure that what you saved up over the years goes towards your kin and loved one.
Not everyone who has a little something saved off to the side has the income and overall wealth of a one-percent. To most American families, end-of-life care can be incredibly pricey, and Medicaid can be critical to ensure that there is something of a financial legacy left after a loved one passes. Estate planning tools can help you sequester your modest wealth and make sure that some of your most valuable and prized countable assets are not counted.
Another good reason to consider setting up an estate plan is avoiding the probate process. Probate is what occurs when a person passes away, and a court must convene to determine how their belongings should be distributed among surviving kin.
When the probate process begins, every asset the deceased owned must be accounted for – both physically, and on the public record. Avoiding probate allows one to keep their assets private and minimize the time cost and financial burden of maintaining the help of a legal professional throughout what is potentially a very lengthy and drawn out probate process.
Probate is longer and more complex the larger and more complex the estate is. However, there are ways to address the probate process in an effective way – one of them is to utilize estate planning tools to reduce the number of assets included in the final count.
Just like countable and non-countable assets when checking Medicaid eligibility, there are assets that go through probate and assets that are effectively ignored during the probate process. One way to move assets out of probate is to use a trust. Another is to utilize a life estate deed to split property between you and a beneficiary.
Life estate deeds change the ownership over a given piece of property by splitting it between the grantor and the grantee, essentially passing the property over to the grantee upon death, under the condition that the grantor (the original owner/you) can live on the property/use the property for the remainder of their days on this earth.
A life estate effectively removes your ownership over the property to a degree, while still giving you the ability to live on the property. This makes it a non-countable asset, ensuring that it need not be included in a will, in the probate process, or as part of your asset limitations for Medicaid eligibility.
Because it does not count as a gift, the transfer of ownership from you to the grantee does not incur the gift tax. Rather than outright gifting the property, it also ensures that the property’s original owner can still stay there without having to worry about the consequences of maintaining a hefty asset while on Medicaid.
However, life estate deeds have drawbacks as well. For one, a life estate does effectively eliminate any control you might have over your old property, aside from the right to live in it. It is also not easily reversible. Once the transfer is completed, it cannot be undone without cooperation from the other party.
If, by some tragedy, the beneficiary/grantee dies before the owner/grantor does, then the beneficiary’s kin become the new inheritors, which is something the owner has no control over.
Furthermore, while the original owner still lives, it is on them to pay property taxes on the property – until they pass away, and it fully transfers to the other party. This means continuing to carry on the tax cost of a potentially pricey piece of property without having the means to sell it, take out a mortgage on it, or otherwise control it aside from living in it.
Trusts are legal agreements between three parties ratified through a trust document, which explains that the first party (the grantor) transfers their property to the second party (the beneficiary) through the management of a third party (the trustee), as per the terms of the trust.
Trusts can be extremely flexible, and their capabilities range from setting up a fund for a special needs child to receive financial help long after you pass away, to giving your firstborn a set sum on a specific date, to ensuring that your pet continues to be taken care of for as long as they live after you’re gone.
Trusts can be expensive, as they need to be maintained, and part of a trust’s value must go towards the trustee for their services. It is the trustee’s job to look after the assets within the trust, maintaining and managing them, and keeping them in shape. Trustees can be good friends, or legal professionals. Likewise, beneficiaries can range from individuals to non-profit organizations, and corporations.
Trusts are typically revocable or irrevocable, with the latter being harder to undo and coming with more restrictions. Irrevocable living trusts effectively let you transfer your ownership over an asset into the trust, guaranteeing you a limited amount of control in exchange for asset protection.
While this seems like a life estate, the benefits of an irrevocable trust include its sheer flexibility – you can still remodel the house, rent it out, or even sell it – but all gains made off that house stay within the irrevocable trust.
Irrevocable trusts and life estates are just two ways to potentially avoid probate, avoid creditors, or sequester assets for eligibility purposes. They each have their pros and cons, with varying degrees of difficulty in terms of setup, and varying levels of payoff depending on the circumstances and considerations of the case. Sometimes, it is best to turn to a life estate. Other times, it is better to make use of a living trust.
Regardless of what your goals are, there is no way to responsibly recommend one over the other in every case, as every case has different needs and potential recommendations. It is best to discuss your options with an estate planning professional and move on from there.
Founded in 1975 by L. Rob Werner and serving California for over 48 years, our dedicated attorneys are available for clients, friends, and family members to receive the legal help they need and deserve. You can trust in our experience and reputation to help navigate you through your unique legal matters.
Whether you need help creating a living trust or navigating probate, our living trust law firm's compassionate team of estate planning lawyers and probate lawyers are here to help you and ready to answer your questions.
Our goal is to make your case as easy as possible for you. Hiring a lawyer can be a daunting task, but it doesn’t have to be. From the moment you contact our firm, through the final resolution of your case, our goal is to make the process easy and understandable. We cannot change the fact that probate is a long and complicated process, but through our Werner Law Firm Difference, we strive to go out of our way to keep you informed of your case through every step of the way. We are constantly refining our processes and procedures for a more streamlined and calm client experience. Our goal is to have you feel like a burden was lifted from your shoulders, and that we made the whole process an easy one
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