Life Care Planning: ‘Lady Bird Deed’ not a wildflower planting but a Medicaid oasis

IMG_0703By Sandra W. Reed

The Lady Bird Deed is not a wildflower planting, but it can create an oasis as lovely as wildflowers in a meadow in the land of Medicaid estate recovery.   Let me explain.

Medicaid Benefits Often Needed for Long-Term Care

Since Medicare does not pay for long-term care, many families faced with the need can benefit from Medicaid assistance with the costs. Medicaid is a government program that has more than 40 programs in Texas, one of which is to help those who need long-term care pay for it. The program is funded primarily with federal dollars but administered through the state. For those requiring medically necessary long-term care who qualify under its income and resource limitations, Medicaid pays the expense of that care after applying the applicant’s income.

Principal Residence of Medicaid Applicant Is Not A Counted Resource

A discussion of the Medicaid income and resource rules are beyond the scope of this column. What is important here is that the principal residence of the applicant is not a disqualifying resource, regardless of the number of acres associated with it, as long as the value of the property is $500,000.00 or less.  The applicant must intend to return to the residence, but this intention is always assumed.

Medicaid Right to Seek Reimbursement Is Limited to Probate Estate     

Federal legislation passed in 1993 required each state, as a condition to receiving federal funds for Medicaid, to institute a system for seeking repayment from a recipient’s estate for medical assistance costs paid out by Medicaid. Texas did not pass the legislation to enable this estate recovery until 2003 and the regulations to enforce the Texas provisions did not go into effect until March 1, 2005. The recovery rules apply to anyone who has applied for Medicaid after March 1, 2005.

Under the Texas system, Medicaid reserves the right to seek reimbursement up to the amount Medicaid paid out in benefits after the recipient dies from the probate estate only.

Exceptions to Estate Recovery

If the home passes to a surviving spouse, a surviving child under age 21 or a child of any age who is blind or disabled, then the home is always exempt from estate recovery.

In addition, certain hardship waivers listed below may apply.

  • The estate subject to recovery has been the site of the operation of a family business, farm or ranch at that location for at least 12 months prior to the death of the decedent, is the primary income producing asset of heirs and legatees, producing more than 50% of their livelihood;
  • Heirs and legatees would become eligible for public and/or medical assistance if Medicaid recovered;
  • Allowing one or more survivors to receive the estate would enable him/her/them to discontinue eligibility for public and/or medical assistance;
  • The Medicaid recipient received medical assistance as the result of a crime, as defined by Texas law, committed against the recipient;
  • Up to $100,000 of the value of the homestead is exempt from recovery if the beneficiary of the estate who is either a sibling or direct descendant of the decedent has gross family income below 300% of the federal poverty level.  If some, but not all, heirs or beneficiaries meet this level, then the hardship exemption will be that percentage that such person(s) meeting the requirement are to receive;
  • Necessary and reasonable maintenance expenses and taxes paid with respect to the property of the deceased Medicaid recipient are deducted from recovery;
  • Necessary and reasonable expenses for the direct payments of the cost of care for the Medicaid recipient that enabled the Medicaid recipient to stay at home in delay of instituting long-term car are deducted from recovery;
  • No recovery is sought from recoverable estate worth $10,000 or less or if the cost of the sale of the property would be equal to or greater than the recovery from the sale of the property.

Lady Bird Deed Take Principal Residence Out of Probate Estate

Families often fear that Medicaid will take their home when the loved one dies.  This fear causes many to avoid applying for Medicaid even when it is desperately needed.

The fear is unfounded if preventive action is taken. There is still a remedy to save the home if none of the other exemptions apply.  Enter the Lady Bird Deed.

The Lady Bird Deed is a warranty deed in which the applicant transfers his or her interest in the property to the person(s) he or she wants to own the property after his or her death. The applicant retains an “enhanced life estate” meaning that applicant transferring reserves the right to sell or convey the property during the owner’s lifetime.  It is this last feature which makes the deed a Lady Bird Deed (and it is named after Lady Bird Johnson because President Lyndon B. Johnson was said to use this type of enhanced life estate deed to convey some land to his wife).

The retention of the right to sell or convey the property keeps the deed from being a transfer which would result in a penalty that would delay benefits under the Medicaid rules.  At the same time, the Lady Bird Deed prevents Medicaid from reaching this asset for recovery of amounts paid out in benefits because, upon the death of the person who has executed the deed, the property passes immediately to the person(s) named transferee by virtue of the deed rather than passing through the benefit recipient’s probate estate.

Since Medicaid reimbursement in Texas is limited to the assets in the beneficiary’s probate estate, no assets outside of the probate estate can be reached by Medicaid.  The Lady Bird Deed may not grow a bed of pretty flowers but it does allow the Medicaid recipient to transfer what is often his or her most substantial asset without fear of having it taken by Medicaid after he or she dies.

 Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth, Texas.  She lives in beautiful Somervell County, near Chalk Mountain. If you have questions about this column or wish to suggest a topic of interest, Ms Reed may be contacted by phone at 254.797.0211 or by email at swreed2@yahoo.com

 

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