Estate Planning

Can You Ensure Security for a Special Needs Child?

If your child is a special needs child (including an adult or a minor who has a physical or mental disability), it’s right to be concerned about what will happen to that child when you can no longer be a caretaker and parent, but you can ask a Waco special needs planning attorney to help.

If your child has special needs, you should consider setting up a special needs trust with a planning attorney’s help and advice. In Texas, your special needs trust can ensure that your special needs child is cared for properly after your death or if you become incapacitated.

Without a special needs trust (also called a “supplemental needs” trust), your child could become disqualified for public benefits, lose any money that you leave, or even end up being exploited by others. What are the specific benefits of setting up a special needs trust? How does it work?

How Will a Special Needs Trust Benefit Your Family?

Trusts are legal documents that spell out how a trustee of your choice will manage assets for another person. The trustee you choose for your special needs trust should be a knowledgeable and trustworthy individual who is good with details.

Under federal law, you are allowed to keep assets for your special needs child in a special needs or supplemental trust without losing the child’s eligibility for government benefits, provided that the trust satisfies several legal requirements.

If you give or leave assets directly to your special needs child, your child could lose his or her eligibility for public assistance. But if you transfer those assets to a supplemental or special needs trust, your child will receive appropriate care and remain eligible for public benefits.

If your special needs child counts on your financial support, a Waco estate planning lawyer will help you set up your special needs trust and ensure that it is compliant with all federal and state requirements.

What Public Benefits Are Available to Special Needs Children?

In Texas, many people with disabilities or special needs qualify for government benefits. A special needs child may be eligible for programs including but not limited to Supplemental Security Income (SSI), the Supplemental Nutrition Assistance Program (SNAP), and Medicaid.

What can these programs provide? Medicaid pays a variety of healthcare costs for those who are qualified. Supplemental Security Income is available to adults with little or no assets or income. SNAP helps qualified families and individuals with food purchases.

If a special needs child qualifies now for Medicaid, SNAP, or SSI, leaving an inheritance directly to that child could make the child ineligible. Special needs persons are eligible for these programs only when their financial resources and incomes are limited.

How Does a Special Needs Trust Work?

Special needs trusts in Texas provide for special needs children without risking their eligibility for public benefits. The child will not have control over the funds in the trust, which will be owned by the trust and will be managed by the trustee you have named.

As long as you are alive, you can name yourself as the trustee and manage the trust, but you also must designate someone to be your successor trustee and manage the trust after your death or should you become incapacitated.

When a special needs child needs professional, full-time medical care, a Waco special needs planning attorney can establish a trust that maximizes your family’s savings, reduces your family’s costs, and maintains your child’s eligibility for government assistance.

If your own special needs child is a minor, you should also name a guardian for the worst-case scenario – if you and/or the other parent unexpectedly and suddenly pass away. If you don’t name a guardian, a court will name one in that circumstance, but that choice should be yours.

What Else Should You Know About Special Needs Trusts?

Every special needs trust is different. Here are some of the facts you should know when you ask a Waco estate planning lawyer to set up your special needs trust:

1. A trust for a special needs individual must be precisely written. It must clearly state that the trust has been set up for your child’s extra and supplemental care beyond what government benefits provide.
2. Trusts for special needs individuals cannot directly transfer cash to that person. The trustee you name will manage the trust’s spending, and that trustee will pay directly – for example – for your child’s utilities, housing, and healthcare providers.
3. Trusts for special needs individuals are irrevocable, so you can’t cancel or modify the trust without court approval. Special needs trust funds can’t be seized by creditors, aren’t subject to liens, and can’t be lost through lawsuits.

Should You Consider a “Pooled” Trust?

A pooled trust may be the right option for you and your special needs child. With a pooled trust, rather than designating an individual as your trustee, you choose a non-profit that will pool, invest, and manage the special needs trust.

These non-profits maintain individual trust accounts and assign an account manager to work with the special needs individual.

Pooled trusts ensure that special needs funds are managed capably, that your special needs child will receive the proper care, and that the child will remain eligible for government benefits. You should discuss with your planning lawyer whether a pooled trust is right for you and your child.

How Will a Planning Attorney Help You?

Your special needs planning attorney should be an experienced estate planning professional who understands your concerns about your child and your child’s needs. A lawyer can offer guidance and insights, but the final choices about a special needs trust for your child are yours alone.

You and your attorney will review your child’s personal situation, identify the child’s needs, and set up a personalized trust that meets your child’s needs and provides peace of mind about that child’s future.

Choose Rainey & Rainey for All of Your Planning Needs

In order to set up a special needs trust, you’ll need to work with a Texas trust attorney who will help you plan for your loved one’s future. The estate planning attorneys at Rainey & Rainey will provide the help that you and your family need.

Special needs planning is more than merely writing a trust document. Your attorney may suggest options that you’re not aware of. At Rainey & Rainey, our attorneys assist and guide Texas families with every aspect of estate planning and special needs planning.

To set up a special needs trust, to create a comprehensive estate plan, or if you would simply like to learn more, call the offices of Rainey & Rainey now at 254-752-8644 (in Waco) or 512-598-9005 (in Georgetown). Rainey & Rainey works with families throughout the State of Texas.

What is a Deed?

Several types of property deeds are legally valid in the State of Texas. Which type of deed should you create when you sell a property? Which type of deed should you expect when you buy a property? Your first step should be discussing the matter with a Waco estate planning attorney.

A deed is a written document that conveys the legal title to real property. When you sell a property, you usually create a new deed as written proof that you have transferred your ownership rights – your “title” – to someone else. However, not all deeds are alike.

The only way that a buyer takes title to a property is through a deed, but there are several types: for example, “lady bird” deeds and “quitclaim” deeds are two different deeds that accomplish different things. How are lady bird and quitclaim deeds similar? How do they differ? What else should you know about lady bird and quitclaim deeds?

What Makes a Deed Valid in Texas?

Usually, a deed is a document that conveys “title,” the actual ownership of a property. The deed itself is a legal document; title is the legal right of ownership conveyed by the deed.

To be valid under Texas law, deeds must:

1.  be put in writing
2.  be signed by the seller (called the “grantor”)
3.  clearly state any intent to transfer the property
4.  designate the buyer (called the “grantee”) by name
5.  include the property’s legal description
6.  be sent by the grantor and received by the grantee

How Do Lady Bird Deeds Work?

A lady bird deed – a revocable deed that retains a life estate – can give the owner of a property considerable advantages. He or she (the grantor) may transfer the ownership of a property to another party (the grantee) while retaining the lifelong right to reside on, use, or sell the property.

With a conventional life estate deed, as the estate’s holder and grantor, you owe the grantee a duty to maintain the property’s value, and you may not:

1.  mortgage or sell the property unless the grantee consents
2.  designate another grantee without the current grantee’s consent
3.  unilaterally rescind the grantee’s remainder interest and cancel the deed

However, unlike life estate deeds, lady bird deeds may be revised or even revoked by the grantor at any time and without the consent of the grantee. If a grantor did not transfer the property, it passes to the grantee upon the grantor’s death – with no probate court interference.

What Are a Lady Bird Deed’s Disadvantages?

Some title companies in Texas may require signatures of the beneficiaries, when selling a home that has a lady bird deed on it. This is not the way it should work, based on the nature of the Lady Bird Deed, but does occasionally happen. This can often be circumvented, by using a more agreeable title company.

Additionally, lady bird deeds apply only to real property. Other assets in Texas must be handled with a trust, a will, or another estate planning tool. A Waco estate planning lawyer can prepare a lady bird deed as well as any of the other estate planning documents you need.

What is a Quitclaim Deed?

Conventional warranty deeds protect a title from conflicting title claims and ensure that the deed is in fact legal. A quitclaim deed does not provide that assurance. Rather than convey a seller’s interest, a quitclaim merely releases the seller from any claim to or interest in the property.

While a quitclaim deed may be a good option for the transfer of property among family members, in Texas, most insurance companies will not insure homes with a quitclaim deed in the title chain.

In Texas, you should not buy or sell a property with a quitclaim deed without consulting a Waco estate planning attorney. In fact, you should consult an estate planning attorney to advise you – and to protect your long-term interests – whenever you buy or sell real property in this state.

How Can a Lady Bird Deed Help Someone Plan for Medicaid?

Due to skyrocketing nursing home costs and because many insurance companies no longer even sell long-term care policies, Medicaid is the practical long-term healthcare option for a growing number of Texans. To qualify, however, your income and assets cannot exceed certain thresholds.

Equity in your primary residence is usually excluded when your assets and properties are determined for Medicaid purposes, but if you transferred property for less than its market value in the previous five years (the Medicaid “look-back” period), you may not qualify for Medicaid.

However, a lady bird deed can make the difference. Under Medicaid’s look-back provisions, lady bird deeds do not legally establish a property transfer. And as property with a lady bird deed is not probated, it’s also not subject to this state’s Medicaid Estate Recovery Program.

What Else Do You Need to Know?

Whether you plan to transfer your properties and assets to your beneficiaries with a trust, a will, a lady bird deed, or some other legal document, that document should be part of a personalized and comprehensive estate plan that ensures the financial security of your family and loved ones.

In many situations, a lady bird deed is going to meet a property owner’s needs. In some rare situations, a quitclaim deed may be the practical answer. In this state, you have a number of options.

If you’re on either side of a property transaction, have an estate planning attorney explain those options. You’ll need someone with experience, knowledge, and a reputation for legal excellence, but most of all, you’ll need an attorney that you like, you’re comfortable with, and you trust.

At Rainey & Rainey, We Help Our Clients Plan for the Future

We don’t know what will happen tomorrow, but we can be prepared for it. At Rainey and Rainey, a Waco estate planning lawyer will help you plan for the future, protect your interests, and make sure that your family has security in the years ahead.

If you are in or near the Georgetown, Austin, or Waco area, reach out to the offices of Rainey & Rainey to prepare:

1.  a lady bird deed, quitclaim deed, or another property deed
2.  a medical or financial power of attorney
3.  a Will or a trust
4.  an advance medical directive or living will

The legal team at Rainey & Rainey represents and advises clients in matters related to property transactions, estate planning, healthcare planning, guardianship, and probate. To learn more, or to prepare the documents you need, contact Rainey & Rainey now at 254-457-5083.

What is a Lady Bird Deed?

A “Lady Bird” deed is a kind of deed in Texas that transfers a property to a new owner when the current owner dies, allowing the property to avoid the probate process. Whether you should prepare a lady bird deed is a question you should discuss with a Central Texas estate planning lawyer.

A lady bird deed also lets the current owner of a Texas property retain control over the property during their lifetime. This can reduce tensions between children and step parents in blended families. In addition to the distinct advantages offered by such a deed, however, there may also be disadvantages.

Do you need a lady bird deed? What are the advantages and disadvantages of having a lady bird deed? When should you seek the advice and services of a Waco probate attorney? Keep reading for the answers that, either now or in the future, you and your loved ones may need.

How Does a Lady Bird Deed Work?

A lady bird deed (formally called an enhanced life estate deed) allows a property owner in Texas to transfer property to others automatically upon the property owner’s death. The property owner maintains the use, control, and ownership of the property while he or she is still alive.

In the state of Texas, the holder of a lady bird deed may rent, sell, or otherwise use the property without the involvement of the grantees/ beneficiaries. The beneficiaries have no legal rights to the property and their consent is not required to sell the property during the lifetime of the deed holder.

The main benefit of a lady bird deed is probate avoidance. If the holder of a valid lady bird deed did not otherwise transfer the property or cancel the deed, the property passes automatically to the grantees/ beneficiaries upon the deed holder’s death without interference from a probate court.

What Are the Other Benefits of a Lady Bird Deed?

In the State of Texas, lady bird deeds can be easily amended or revoked. The deed owner is free to change his or her mind at any time and change the deed accordingly.

A lady bird deed should be considered before a Texas homeowner applies for Medicaid benefits. Though a primary residence is not usually counted toward Medicaid eligibility, a lady bird deed can ensure that the property remains protected when you submit a Medicaid claim and after your death.

A lady bird deed costs less than a trust, but may cost more to prepare than a conventional deed. A lady bird deed preserves the Texas homestead exemption, saving twenty to thirty percent in taxes. This is important because property taxes in Texas are some of the highest in the nation.

Does a Lady Bird Deed Entail Any Disadvantages?

Although a lady bird deed preserves the Texas homestead exemption, the taxable value of your property may increase when it transfers to your beneficiary at the time of your death.

In addition, some Texas title insurance companies may refuse to insure a property subject to a lady bird deed, or may charge more for insurance. More often, a title company will likely require the approval of the beneficiaries before the sale of the property can take place.

How Can Lady Bird Deeds Help Blended Families?

A lady bird deed can be a practical estate planning tool for newlyweds with children from a prior marriage. A lady bird deed protects the interests of your new spouse as well as the interests of the children from your prior marriage.

An issue that often causes conflict in blended families is determining what will happen to someone’s home. After you pass away, your second spouse may want to continue residing in your marital home, but your children from your first marriage may expect to inherit that home.

You and your Waco probate attorney can prepare a lady bird deed that grants the second spouse a lifetime right to reside in that home and the right to use and live on that property as he or she sees fit.

That lady bird deed also ensures that the ownership of the home passes to the beneficiaries after your second spouse passes away. The lady bird deed lets you grant to your spouse the lifelong right to stay in the home while still safeguarding your children’s interest in the home.

How is a Lady Bird Deed Prepared?

It is never too early to discuss your many estate planning options with a Texas estate planning lawyer. If you choose to have a lady bird deed, your Waco estate planning lawyer will prepare that deed on your behalf.

A lady bird deed must include:

1.  a legal description of the property
2.  your name and the names of your beneficiaries
3.  a provision that reserves your lifetime rights to the property

What Else Should You Know About Lady Bird Deeds?

Whether you are single, married for the first time, or part of a blended family, you will have to make a decision at some point about who will inherit your home, and you will also have to decide on the best way to leave and transfer that inheritance.

Whether you transfer your assets and properties with a will, a trust, and/or a lady bird deed or another estate planning tool, having a comprehensive and personalized estate plan prepared by your attorney ensures that your loved ones will have financial security after you’re gone.

But there are literally thousands of attorneys in Texas. Where can you find a Texas estate planning lawyer who has the knowledge, experience, and integrity you need?

Put the Team at Rainey & Rainey to Work for You

In or near Waco, Austin, and Georgetown, you won’t have to search extensively for the right estate planning lawyer. An estate planning lawyer at Rainey & Rainey can prepare a lady bird deed, a trust, a last Will and Testament, and the other estate planning documents you may need.

There is no way to know the future, but at Rainey & Rainey, we can help you prepare for it. We will help you ensure that your loved ones are cared for properly – after a second marriage and even after you’ve passed away.

To learn more, prepare a lady bird deed or another estate planning document, or set up a comprehensive estate plan, call Rainey & Rainey today at 254-457-5083. Our offices are conveniently located in Georgetown and Waco, and we provide estate planning services throughout the State of Texas. Let us help you plan for the future.

What Are Advance Medical Directives?

Every adult should have advance medical directives, documents that tell your family and medical providers your wishes for medical care when you can’t express those wishes yourself.  A Waco advance medical directives attorney at Rainey & Rainey will help you prepare the advance directives you need.

Americans move and travel a great deal, but can our wishes and instructions regarding our medical care move with us? Will your advance medical directive prepared by a lawyer in Texas be honored in other states, and are directives prepared in other states recognized here in Texas?

If you will continue to read this short discussion about advance medical directives and Texas law, you’ll find the answers you may need. You will also learn how advance medical directives work and which legal documents are recognized by the law in Texas as advance medical directives.

Which Documents Are Advance Medical Directives in Texas?

According to the Texas Health & Human Services Commission, these are the documents that are legally considered advance medical directives in the State of Texas:

1. Medical Power of Attorney: This gives someone you designate as your agent the power to make medical choices for you if you cannot make those decisions yourself. It may give your agent extensive power to make medical decisions or it may limit that authority.
2. Directive to Physicians and Family or Surrogates: This is a “living will.” It’s a document that expresses your wishes regarding future medical treatment and end-of-life care if you can’t express those wishes yourself because you’re incapacitated, comatose, or disabled.
3. Out-of-Hospital Do-Not-Resuscitate Order: This document directs medical personnel to halt resuscitation efforts and to allow a patient to die naturally and with dignity. The order does not block the provision of other medical care including comfort care.
4. Declaration for Mental Health Treatment: This states your wishes regarding convulsive therapy, psychoactive medication, and emergency mental health treatment. It takes effect only if a court believes that you are incapacitated and cannot make treatment decisions.

Are Advance Directives From Texas Honored by Other States?

If you have an advance directive prepared in Texas, and you travel or relocate to another state, you will need to know if that state will honor your advance directive – that is, if the directive is “portable.” One state’s advance directive may not always be accepted in other states.

While most states will accept an advance medical directive that was created in a different state, some states will recognize advance medical directives only if a directive satisfies that state’s own legal requirements for advance medical directives.

Are Advance Directives From Other States Honored in Texas?

Under Texas law, an advance directive legally prepared in a different state has the same effect as a directive prepared under Texas law, with this exception: a directive from another state cannot authorize any withholding, withdrawal, or administration of care prohibited by Texas law.

The states may also differ on precisely what the language in an advance medical directive may mean. If your directive was prepared in another state, a Waco advance directives lawyer can tell you if it needs to be revised in order to be clearly understood and legally effective in Texas.

What Else Should You Know About Advance Directives and Portability?

There is little evidence of healthcare providers actually refusing to honor advance directives from other states. Still, if you’re traveling or relocating to another state, you should ask a Waco advance medical directives attorney to determine if your directive will be honored in that state.

Attorneys in Texas would like to assure a client that his or her advance medical directive will be valid and honored in other states, and it probably will. Nevertheless, if you are traveling or relocating, you should speak with a Texas advance directives attorney before you depart.

When Should You Have Advance Medical Directives Prepared?

If you are an adult in Texas, the answer to that question is “now.” We can’t know what the future holds, but preparing advance medical directives is the legal way to ensure that your instructions are followed and your wishes are honored if you become disabled, comatose, or incapacitated.

A Directive to Physicians and Family or Surrogates (that is, a living will) spells out your wishes and instructions regarding artificial nutrition and hydration, cardiopulmonary resuscitation, pain relief, ventilators, do-not-resuscitate orders, and other end-of-life questions and issues.

Most people in Texas who prepare living wills are doing it to make it clear that, if a medical condition is irreversible and/or terminal, they do not want their medical providers to employ “heroic” life-extending measures that in effect prolong the dying process.

What Other Documents Do You Need?

Adults in Texas should also have a medical power of attorney that lets someone you trust make medical decisions for you if you can’t make those decisions yourself. A Waco advance directives lawyer can meet with you and prepare a living will and a power of attorney on your behalf.

You should also ask that lawyer to prepare an Out-of-Hospital Do-Not-Resuscitate Order and a Declaration for Mental Health Treatment. In the future, you may need these legal documents if you become incapacitated, comatose, or severely physically or mentally disabled.

How should you choose an attorney in the Waco area to prepare these documents for you? You’ll need someone who has substantial experience with advance directives and estate planning documents in Texas. How should you select that attorney?

Choose the Trusted Legal Team at Rainey & Rainey

The team at Rainey & Rainey has over two decades of experience preparing advance directives and other important legal documents for our clients across the State of Texas. An advance directives attorney at Rainey & Rainey can prepare the advance directive documents you need.

Your attorney at Rainey & Rainey can also explain and prepare a last will and testament, a trust, a guardianship declaration, or a comprehensive estate plan that will provide long-term financial security to your loved ones.

To learn more about advance medical directives in Texas, to begin preparing those documents, or to learn about our estate planning services, promptly contact Rainey & Rainey at 254-457-5083. For your convenience, we have offices located in both Waco and Georgetown.

The attorneys at Rainey & Rainey handle matters related to estate planning, probate, guardianship, and healthcare planning.

Do You Need a Power of Attorney?

When you prepare a power of attorney, you will designate one or more “agents” to make medical or financial decisions on your behalf. A Waco estate planning lawyer at Rainey & Rainey will help you create a comprehensive power of attorney document that complies with Texas law and meets your needs.

Do you need a power of attorney in the State of Texas? Who should be your power of attorney agent? Should you have more than one person acting as your power of attorney agent? What are an agent’s duties? Keep reading for the answers that you and your loved ones may need.

What Does a Power of Attorney Provide?

If you should become disabled or incapacitated, and you can’t make the financial or medical decisions that you need to make, a power of attorney document can give your agent the legal authority to make those decisions and to protect your well-being and best interests.

In Texas, every adult should have a medical power of attorney and a financial power of attorney. If others are counting on you (if you have a family or a business, for example), it is particularly important – and it’s never too early – to prepare the legal documents that may one day be needed.

A financial power of attorney gives your agent the authority to do your business on your behalf. It can give your agent extensive powers over all of your financial and business affairs or limited authority to deal only with specific obligations. Similarly, a medical power of attorney may give your agent extensive power to make your medical decisions or may place limits on that authority.

Who Should Be Your Agent?

When you prepare a power of attorney, who should be designated as your agent? It should be someone you trust to make choices for you and direct your affairs if you are disabled or incapacitated. It should be someone you trust with your life – because that’s what you’re doing.

An agent should be committed to your long-term best interests, organized and detail-oriented, and at ease when working with healthcare providers and financial professionals. Many people choose a family member – or more than one person – to act as a power of attorney agent.

What Are a Power of Attorney Agent’s Responsibilities?

Power of attorney agents in this state must adhere to the conditions and terms set forth in the power of attorney document. An agent cannot have any conflicts of interest.

Your financial power of attorney agent, for example, may not commingle or combine his or her own property or assets with your property and assets unless you and the agent jointly owned the assets and property (for instance, as marital property) prior to having the document prepared.

Your financial power of attorney agent must keep detailed and accurate records of any transactions or other decisions made on your behalf. Your agent must make your best interests the highest priority, and your agent may receive reasonable compensation for his or her services.

Should More Than One Person Be Named as Your Agent?

In Texas and several other states, more than one co-agent may share your medical and financial powers of attorney. Should you name more than one person to be your agent? What are the advantages – and the disadvantages – of having more than one power of attorney agent?

Having a second power of attorney agent can be quite convenient, but there can also be some serious disadvantages. You should discuss every aspect of your power of attorney document with your Waco estate planning attorney at Rainey & Rainey before you finalize and sign that document.

What are the advantages of naming more than one power of attorney agent? A second agent can make it faster and easier to manage your business and financial affairs. Dividing responsibilities may also make acting as your agent less burdensome and more convenient for your co-agents.

What Are the Disadvantages of Designating Co-Agents?

The potential for disagreements among co-agents may be the main reason to name only one power of attorney agent. Co-agents may disagree about financial choices. If they disagree about medical decisions, your healthcare provider may be the party making medical decisions for you.

Another disadvantage is the potential for confusion when co-agents give conflicting directions to healthcare providers. When your co-agents are family members, disputes over your healthcare or your finances could mean that your family members must go to court to settle their differences.

Moreover, when more than one person is your agent, it slows the making of time-sensitive decisions, and it increases the potential for abuse. An agent may be liable for any self-serving or fraudulent actions, and when presented with sufficient evidence, a court may remove an agent.

What is a “Successor” Agent?

When you prepare a financial or medical power of attorney document and you name an agent, you should also name a successor agent in case your first choice can’t act as your agent when an agent’s services are required.

A successor agent is not a co-agent. A successor agent steps in if the person you have designated as your agent is unwilling, unable, or unavailable to fulfill an agent’s duties. Unless the document states otherwise, your successor agent has the same authority as your original agent.

Before you name any power of attorney agent, co-agent, or successor agent, have a discussion with that individual about an agent’s responsibilities and the types of choices that may have to be made on your behalf.

Who Should Prepare Your Power of Attorney Documents?

Finding the right Waco estate planning lawyer to prepare your power of attorney documents may not be easy. You need an attorney who understands your needs and has considerable experience preparing power of attorney documents in Texas. Where can you find that attorney?

A Waco estate planning attorney at Rainey & Rainey can prepare the power of attorney documents that you may need. Your attorney can also discuss and prepare a living will, a declaration of guardianship, a trust, a last will and testament, or a comprehensive estate plan to provide long-term financial security for your loved ones.

We can’t predict the future, but we can prepare for it. To learn more, to prepare a financial and/or medical power of attorney, or to begin planning your estate, call Rainey & Rainey now at 254-457-5083. We have offices in both Georgetown and Waco.

Long-term care involves not only a loss of personal autonomy; it also comes at a tremendous financial price. Proper planning can help your family prepare for the financial toll and protect assets for future generations.

Long-term care can be very expensive, especially around-the-clock nursing home care. Most people end up paying for nursing home care out of their savings until they run out, at which point they can qualify for Medicaid to pick up the cost.

Medicaid rules require that recipients have no more than $2,000 in “countable” assets (the figure may be somewhat higher in some states) and limited income. Any excess assets need to be spent down before you can qualify for Medicaid. In addition, in order to be eligible for Medicaid, you cannot have recently transferred assets. If you transfer assets within five years of applying for Medicaid, you may be subject to a penalty period during which you cannot receive benefits. After you die, Medicaid also has the right to recover from your estate, which in the case of a Medicaid recipient usually means only the house.

Careful planning in advance can help protect your estate for your spouse or children. If you make a plan before you need long-term care, you may have the luxury of distributing or protecting your assets in advance. This way, when you do need long-term care, you will quickly qualify for Medicaid benefits. The following are some tools that can be d in an estate plan to prepare for Medicaid:

• Trusts. One of most important estate planning tools you can use is an “irrevocable” trust — a trust that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the “grantor”) for life, and the principal cannot be applied to benefit you or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home. And to avoid Medicaid’s “look-back period,” the trust must be funded at least five years before applying for benefits.
• Annuities. Annuities are another tool married couples can use to prepare for Medicaid. An immediate annuity, in its simplest form, is a contract with an insurance company under which the policyholder pays a certain lump sum of money to the insurer and the insurer sends the policyholder a monthly check for the rest of his or her life. In most states the purchase of an annuity is not considered to be a transfer for purposes of eligibility for Medicaid, but is instead the purchase of an investment. It transforms otherwise countable assets into a non-countable income stream. As long as the income is in the name of the spouse who is not in the nursing home, it’s considered non-countable. For single individuals, annuities are less useful, but if you transfer assets, you may be able to use an annuity to pay for long-term care during the Medicaid penalty period that results from the transfer.
• Protecting your home. After a Medicaid recipient dies, the state must attempt to recoup from his or her estate whatever benefits it paid for the recipient’s care. This is called “estate recovery.” For most Medicaid recipients, their house is the only asset available, but there are steps you can take to protect your home. Putting your house in a trust can be a good option, but once a house is placed in an irrevocable trust, you cannot remove it. Another option is a life estate, which is a form of joint ownership of property between two or more people. They each have an ownership interest in the property, but for different periods of time. The person holding the life estate possesses the property currently and for the rest of his or her life. The other owner has a current ownership interest but cannot take possession until the end of the life estate, which occurs at the death of the life estate holder.

Talk to your attorney about whether your estate plan should include preparation for possible Medicaid eligibility.

More than 4 in 10 Americans have at least one step-relative in their family – either a stepparent, a step or half sibling or a stepchild — according to the Pew Research Center. The National Center for Family and Marriage Research estimates that about one-third of all weddings in America create stepfamilies.

A trust case from North Dakota highlights the importance of taking current and potential step-relationships into account when planning your estate.

William and Patricia Clairmont created two trusts for their grandson, Matthew. In both trusts, “the brother and sisters” of Matthew were contingent beneficiaries (meaning they would be the trust beneficiaries if Matthew died).

After the trusts were created, the Clairmonts’ daughter, Cindy (Matthew’s mother), divorced Matthew’s father, Greg, and Greg remarried and had two children with a second wife. In March 2011, Matthew died suddenly and unexpectedly at the age of 25 without a wife, children or a will.

Under North Dakota law, Greg’s two children with his second wife were technically “brothers and sisters” of Matthew and, thus, eligible beneficiaries under the trusts. The Clairmonts argued for an interpretation of the trust that would exclude Matthew’s stepsiblings as beneficiaries or, alternatively, for reformation of the trust to include language that only lineal descendants of the Clairmonts could benefit from the trusts.

Ultimately, the North Dakota Supreme Court granted the Clairmonts’ petition to reform the trusts based on evidence that the Clairmonts made a mistake of law by interpreting the phrase “brothers and sisters” to include only full blood siblings and based on testimony by the Clairmonts themselves on their intention to benefit their lineal descendants alone.

Although things turned out well for the Clairmonts in the end, it took much time and money to get there. The case stresses the importance of addressing step-relations in your estate plan whether or not you are already a member of a stepfamily.

Life estates can be an excellent tool for Medicaid planning, probate avoidance and tax efficiency, but there are potential problems to look out for. Knowing the implications and risks of a life estate is essential in determining whether it is appropriate for your situation.

In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take
possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.

Life estates are excellent planning techniques in many circumstances. They permit parents to pass ownership in their homes to their children while retaining absolute possession of the property during their lives. By executing a life estate deed, the property avoids probate at the parents’ deaths, is protected from a Medicaid lien, and receives a step-up in tax basis.

However, there are potential issues that may arise with life estates and it’s important to fully understand the following risks:

• As a life tenant, you may not easily sell or mortgage property with a life estate interest. The remaindermen must all agree if you decide to sell or borrow against the property. One thing that can help is a testamentary power of appointment in the deed. This is a mechanism that permits the life tenants to change who ultimately receives the property by directing its disposition in their wills. It won’t allow the life tenant to sell the property, but it does give the life tenant more bargaining power with the remaindermen. Another option is a nominee realty trust. This type of trust permits one or more children to act as trustee or trustees for all the children, and provides that they must follow the direction of a majority of the beneficiaries. So, if there are four children and one child objects to the sale or mortgage of the property, but the other three are on board, the majority can direct the trustee to sign the papers necessary to facilitate the sale or borrowing.
• If the property is sold, the remaindermen are entitled to a share of the proceeds equal to what their interest is determined to be at that time.
• It is not as easy to remove or change a name once it is on a deed to real estate as it is to change the beneficiary on a life insurance policy or bank account.
• Once a remainderman is named on the deed to your house, he or she has an interest in the home and his or her legal problems could become yours. For example, if your child, who is a remainderman, is sued or owes taxes, a lien could be filed against your home. Your child’s interest in the home is not protected if he or she files for bankruptcy. If your child gets a divorce, his or her spouse could claim all or part of your child’s interest in your home. Should your child die before you do, the child’s estate would have to go through probate unless at least one other remainderman was listed as a joint tenant. However, while these claims may be made against the property, no one can kick you out of it during your life.
• Giving away an interest in property could disqualify you from receiving assistance from Medicaid, should you require long-term care within five years of the transfer. In addition, if you and the remaindermen were to sell the property while you were in a nursing home, the state could have a claim against your share of the proceeds for payments it has made on your behalf, but the share of the proceeds allocated to your children would be protected.

As with most planning tools, a life estate can be very useful with valuable benefits, but it is not for everyone. In many cases, the potential problems outweigh the benefits. As the law in this area is complex, it’s important to talk to a lawyer who knows about this in-depth. To find an attorney near you, click here.