Texas Estate Planning

Don't Let Your House Haunt You!

The family home can be a place to hold the heart and soul of generations, and just like any good ghost story, if you don’t treat it right, it will come back to haunt you

 

The family home is often the most precious asset–its walls hold sentimental value as well as some real market value. It’s really important to make sure you make the right decision about your home for you and your family. 

 

How could my house haunt me? 

 

Don’t listen to the ghouls and fools who tell you that you can just gift your home away, or sell it for big bucks just before making some major changes in planning. They don’t know about the five year curse (5 year look back period for Medicaid) or the peril of probate!

 

And it’s not just some kitschy catchphrase–probate is no joke. Probate is the legal process of changing ownership of a deceased person’s assets. It can be a lengthy and often stressful process. If a home has to go through probate, maintaining the property and paying the bills can get complicated–and fast. Your house might not be haunting you, but it sure is haunting your loved ones. 

 

Many folks think you can’t own a home if you’re trying to get on Medicaid, but that’s simply not true. In reality, gifts made within the last 5 years will be scrutinized in Medicaid’s crystal ball (mountains of paperwork).  A homestead is an exempt asset that, under most circumstances cannot count against you; however, Medicaid will try to recoup some expenses through the Medicaid Estate Recovery Program (MERP) at the time of your passing. Thankfully, there are things you can do to keep your home safe from the 5-year lookback period, the Medicaid Estate Recovery Program, AND probate.  

 

Stop the Haunting, take Legal Action!

 

Texas allows for Transfer on Death Deeds, or Lady Bird Deeds, which keep the house in your name throughout your life and grant title to a beneficiary at the time of your passing. These two deed options are slightly different and speaking with a licensed attorney can help guide you to the deed that’s right for you, your loved ones, and your goals. 

 

Now, you might’ve heard about a trust to keep your house safe; however, trusts can be more complicated than they need to be. Depending on the amount of property you own and your other estate planning goals, a trust might not be the best option for you and your family. After your passing, a trust must be administered which is a lengthy process distributing all of the assets in the trust. 

 

The most haunting thing you can do is sell or gift the house before speaking with a licensed attorney in your area who is not only familiar with MedicaId but also your assets and goals. 

What is a Life Estate?

A life estate is a type of property ownership that divides the control and ownership of a property. The person who creates the life estate for their home and assets is known as the “life tenant.” While a tenant retains control of the property, he or she shares ownership during their lifetime with the remainderman (the estate's heir).

Quicken Loans’ recent article entitled “What Is A Life Estate And What Property Rights Does It Confer?” explains that while the life tenant lives, they’re in control of the property in all respects, except they can’t sell or encumber the property without the consent of the remaindermen. After the life tenant passes away, the remainderman inherits the property and avoids probate. This is a popular estate planning tool that automatically transfers ownership at the life tenant's death to their heirs.

The life estate deed shows the terms of the life estate. Upon the death of the life tenant, the heir must only provide the death certificate to the county clerk to assume total ownership of the property.

Medicaid can play an essential role in many older adults’ lives, giving them the financial support needed for nursing facilities, home health care and more. However, the government considers your assets when calculating Medicaid eligibility. As a result, owning a home – or selling it and keeping the proceeds – could impact those benefits. When determining your eligibility for Medicaid, most states will use a five-year look-back period. This means they will total up all the assets you’ve held, sold, or transferred over the last five years. If the value of these assets passes above a certain threshold, you’ll likely be ineligible for Medicaid assistance.

However, a life estate can help elderly property owners avoid selling their home to pay for nursing home expenses. If your life estate deed was established more than five years before you first apply for benefits, the homeownership transfer would not count against you for Medicaid eligibility purposes.

To ensure you’re correctly navigating qualifying for Medicaid, it’s smart to discuss your situation with an attorney specializing in Medicaid issues.

Reference: Quicken Loans (Aug. 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”

What’s an Enhanced Life Estate?

First Coast News’ recent article entitled “Deed named for former first lady could be key to planning your estate” explains that a strategy that’s available in Florida and a few other states is called an enhanced life estate or a “Lady Bird” deed, named after former First Lady, Lady Bird Johnson.
This deed states that when I die, you get the property, but until then, I reserve all rights to do whatever I want with it. That contrasts with a traditional life estate where a property owner can plan for one or more others to inherit their house.
Typically, the person with a life estate has a lot less control over what happens in the future, including potentially being thwarted by the very person you’re tapping to receive your property at your death, in case you decide you no longer want the house while you’re still alive.
The problem is, now you want to sell the property, but since they are a co-owner, they can refuse. And there’s nothing you can do about it.
Enhanced life estates are also about protecting property and its eventual recipient from creditors after the death of the owner. That’s the benefit of avoiding probate. Medicaid or any other creditor may become a creditor in probate.
A Lady Bird deed supersedes a will.
But there are downsides to the Lady Bird deed. A big drawback is if you change your mind. You have to now record another deed in the public record to remove that, and every deed that you record creates one thing that could go wrong.
However, this can be true of any change made in hope of overriding an earlier estate decision, and Lady Bird deeds are fairly straightforward.
Ask an experienced estate planning attorney if this type of arrangement is available in your state.
Reference: First Coast News (July 19, 2021) “Deed named for former first lady could be key to planning your estate”

Why Do I Need to Have Up-to-Date Beneficiaries on My Accounts?

When a family member passes away, it can be a very unsettling time. There are many tasks that need to be accomplished in a short amount of time. One way that you can lessen that burden for your heirs by clearly telling them your preferences for your assets. One element of this is making certain that you have accurate beneficiaries to your retirement and investment accounts. 

Nerd Wallet’s recent article entitled “5 Reasons to Add Beneficiaries to Your Investment Accounts Now” says taking the time to do this will help save your heirs and family time, money and energy when they need it most. Let’s take a look at some of the compelling reasons to do this. 

1. Your beneficiaries get to keep more money (and get it faster). When your beneficiaries are assigned to your investment and retirement accounts, the assets will pass directly to them. However, if they are not, those accounts may have to go through the probate process to settle an estate after someone dies. A typical probate case can drag on for a year or longer, and during that time, your beneficiaries are unable to access their inheritance. “Court” also means expenses, time, effort and added stress—all of which are things they’d rather avoid.
2. Less stress for your heirs. When you make certain that you designate the beneficiaries for your accounts, it can relieve your family of a heavy burden, so they’re not trying to figure out your finances while they’re grieving.
3. Your beneficiaries will supersede your will. If you have beneficiaries named, those choices will typically override what is written in your will. Therefore, you can see that keeping your beneficiaries up-to-date is extremely important.
4. It’s easy and painless. If you have a retirement account, such as a 401(k) or an IRA, your account will typically have its own beneficiary form within the account itself. With this, you are able to choose your beneficiaries when you open your account or review them later. With a regular investment account, you’ll need to ask for a transfer on death (TOD) form to make beneficiary elections.
5. You recently experienced a change in your circumstances. If you experience a big life change, like getting married or having a child, it’s critical to update or add beneficiary elections immediately. It’s best to be prepared for the unexpected.

Remember that in community property states, spouses may be entitled to half of the assets in an IRA — even if another beneficiary is listed — unless you have written consent. Ask a qualified estate planning attorney about state laws to be sure your money goes to whom you want. 

Reference: Nerd Wallet (January 22, 2020) “5 Reasons to Add Beneficiaries to Your Investment Accounts Now”