There are numerous tools in the estate planning toolkit, and one of them is the life estate. We will explain why people use life estates in this post, but first, we will share some background information to provide context.
The Process of Probate
A will is not administered by the executor independently without any supervision. Under state laws, a will is admitted to probate, and the court presides over the administration process.
It serves a purpose because creditors are notified, and they have some time to come forward seeking payment. The executor will obtain an Employer Identification Number from the IRS so they can start an estate bank account that can be used to pay bills.
Taxes and other final debts will be paid during probate, and the executor will inventory the assets and prepare them for distribution to the beneficiaries. Appraisals and liquidation of property will sometimes be necessary.
Simple estate cases can be probated in about eight months, but it can take considerably longer when there are complications. The time lag is less than ideal for the inheritors because they do not receive anything while the estate is being probated by the court.
Probate records are available to anyone that goes through the process of obtaining them, so there is no privacy. The expenses that accumulate will consume between three and seven percent of the estate in most instances according to a study that was conducted.
Ultimately, the remaining assets will be distributed to the beneficiaries in accordance with the wishes of the decedent as stated in the will.
Medicaid Estate Recovery
A significant percentage of elders seek Medicaid eligibility late in their lives because the program will pay for long-term care. Most seniors will need paid care, and 35 percent will reside in nursing homes, and Medicare does not cover custodial care.
Your home is not a countable asset for Medicaid eligibility purposes, so it is possible to obtain coverage as a homeowner. However, there is a Medicaid estate recovery mandate.
The program can attach property that remains in your probate estate if you own it at the time of your death. As a result, they could place a lien on your home.
We shared the information above because a life estate can provide a solution. If you establish a life estate, you would name a remainderman that would inherit your property after your death.
While you are still living, you would be able to remain in your home as usual, so nothing would change. After your passing, the remainderman would become the owner of the property and the probate court would not be involved in the transfer.
With regard to estate recovery, you would not be in direct personal possession of the property when you die. The remainderman would be the owner, so the home would be protected from Medicaid estate recovery.
Loss of Control
After you create a life estate, the remainderman has an ownership interest immediately, even while you are living. If you want to lease or sell the home, you would not be able to do so unless you obtain the full cooperation of the remainderman.
Even if you can get the remainderman to agree to sell the home, you would have to split the proceeds, and this is done using actuarial tables that are maintained by the Internal Revenue Service.
You can accomplish the same objectives without surrendering control of your property while you are living if you take a different approach, and we can show you how it can be done.
Schedule a Consultation Today!
This post demonstrates the fact that there are a lot of things to take into consideration when you are planning your estate. As a layperson, you would not be aware of the possibilities, and this is why you should work with an attorney to develop a plan that is ideal for you and your family.
If you are ready to get started, you can call us at 860-548-1000 to schedule a consultation at our estate planning offices in Westport or Glastonbury, CT. There is also a contact form on this site you can use to send us a message.
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