By Robert E. Fravel, Esquire
The primary significant asset of most seniors is their home and/or real estate holdings. The goal of a comprehensive estate plan is to plan for tax savings where possible and plan in advance for Medicaid. Not surprisingly, this can often times lead to changing the type of property ownership in order to accomplish the estate planning and/or Medicaid planning goals. Commonly used examples include transferring the property to the spouse while creating a life estate, adding a spouse’s name to the deed, or placing the property in a trust.
Changing the form of ownership on real estate allows the owner and his or her beneficiaries to protect the particular asset from being taken by a creditor who has a claim against the estate, if the owner of the property were to incur significant medical expenses in the final years of his/her life. Nursing homes and nursing services can be incredibly expensive. Even if a senior’s care is being provided through Medicaid, the service does not come free. Medicaid will place a claim against the senior’s estate for all the medical services rendered once the senior passes away. And, if the senior still has significant assets in his or her name, i.e. real estate holdings, the real estate will have to be liquidated to pay the debt. However, if the real estate assets are not in the senior’s name, then they will not become a part of his or her estate and thus will not be liquidated to pay the debt (assuming a number of other criteria have been met). This is why it is important to address real estate as soon as possible when creating an estate plan for an older client.
Additionally, Medicaid has a “look back period”, which means that when a senior applies for Medicaid, the applicant’s finances for the past 5 years will be examined to see if there were any transfers of assets within those five years. If there were, and the applicant did not receive adequate compensation for said transfers, then the application may be denied. Thus, it is important to get started on Medicaid planning as soon as possible so that the clock on the 5 year look back period starts ticking as soon as possible.
Estate planning and Medicaid planning can be extremely complicated when it comes to seniors. Do not try and go about it yourself because you may risk losing everything. Sit down with an experienced estate planning attorney who can create and implement an estate plan tailored to your individual circumstances.