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Life Estate Deeds Not Your Best Option

  September 08, 2018

Submitted by Edwards Group: Estate Planning & Elder Law

Life estate deeds or life estates can be used instead of a trust to try and protect a house or a piece of farmland. This means that the deed to a farm or house is transferred to the children, but the original property owner can still use the house or farm as long as they are living. Because all the instructions are contained in the deed itself, life estate deeds can seem like a simple way to protect your property. However, you should be aware of some potential problems before you consider this strategy as part of your long-term planning.

Life estate deeds can cause complications in your long-term planning strategy because they don’t protect 100 percent of the value of your property. Signing a life estate deed does not mean you are signing over the complete value of your house or property to your children. Depending on how old you are and how long you have owned the property, a percentage of the property will still be considered yours.

This is particularly relevant if you need to qualify for Medicaid to help pay for a nursing home. For example, if you are 65 years old, Medicaid says that almost 68 percent of the house is still considered yours. At age 70, 60.5 percent is yours. At age 80, 43.66 percent of the value of the house still counts as yours. If you are 70 years old, have a stroke, and need to go to a nursing home, 60.5 percent of the money raised from the sale of your house will be exposed to long-term care costs. Because a percentage of the property is still in your name, you are exposing your property value to your long-term care costs.

Another problem that can arise from life estate deeds is that because you are not the owner of your property, you cannot change who gets your property after you are gone. A life estate deed is a final transaction, and there is no way to reconsider whom your house or property goes to after death.

This also means that if something unexpected happens, and you need to sell your property, you cannot sell without having your children sign off on the sale. Your children must approve the sale because they actually own the property, even though you have the right to use it for the rest of your life. Depending on your situation, life estate deeds can also cause you to be denied Veteran’s Benefits. The VA assumes that any income interest or life estate value is entirely yours and therefore counts this property as an asset.

The best solution to the problems created by life estate deeds is a “nest egg” trust. When setting up a nest egg trust, you can protect the value of 100 percent of your property once five years has passed. You can also set up the trust to allow Veteran’s Benefits and can adjust this preference after the trust is created. You can also retain your power to sell the property or buy a different house because you can be the trustee of your property. If something unexpected happens, you can change who receives your property after death by reserving a rewrite power. Nest egg trusts allow you the flexibility to adapt to family and circumstantial changes. It is very important, when considering a life estate, that you get in touch with a local attorney who specializes in estate planning and elder law to discuss the best options for your unique situation. Trusts are one of the best tools in your legal toolbox and are a great help in your long-term care planning strategy.

Started in 2008, Edwards Group LLC is one of Central Illinois’ most effective estate planning and elder law firms. Edwards Group offers clients a systematic method for every stage of the planning process resulting in highly personalized and effective plans – and that means peace of mind and better protection for families left behind. Call 217-726-9200 or visit the firm’s website at www.EdwardsGroupLLC.com for more information about estate planning or elder law.

Photo credit: karelnoppe/iStock

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September 08, 2018


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