Grandmother put 2 grandsons on warranty deed 10 years ago. House is in life etstate. She has life lease. Goes into a nursing home in 2021. Family hires an attorney. Time for grandmother to sell house for Medicaid. Attorney claims 2 grandsons can "buy out grandmothers portion of interest in the estate" for an amount that is less than fair market value. I would love additional feedback on this.
Big difference between life estate and actual warranty deed where GM only owns 1/3.
Is the attorney a certified elder attorney with experience in Medicaid placement in GM state?
Is your question Whether Grands have to pay FMV or if they have to buy out GM now before she could qualify?
Normally, it is stressed that FMV must be paid BUT I can see where if GM only owns 1/3 interest the FMV might be hard to determine. The attorney may be right. Ask him to give you more information on how this will work out if you doubt the advise.
If GM stated that she wanted to declare her 1/3 ownership Of her residence as an exempt asset there is the problem that if either Grandson wanted to sell their interest in the home, the profit to GM at that time could jeopardize her Medicaid coverage. She would have to spend down the profit on herself in a specific time frame to avoid losing Medicaid coverage. No gifting.
The grandsons interest sounds solid but depending on the state they might end up having to sell after GM passes to satisfy any lien Medicaid might place on the property for her interest or come up with the funds.
I think it would depend on the Grands current situation and real estate laws in your state as well as Medicaid laws. Let us know how it turns out. It’s an interesting question. Either way, that 1/3 will have to be dealt with to create a clear title.
By & large LTC Medicaid allows the elder who owns a home to continue to keep the home as an exempt asset for their lifetime. Whether the home is still on their name or they moved it into a Life Estate or they did a Lady Bird Deed on it, whatever the case it doesn’t matter… it’s still her home with a homestead exemption & primary residence. If it’s a LE mom still is technically the owner / tenant so it’s still her home. Ditto for property put into a Lady Bird / Enhanced Benefit Deed. Medicaid will want some sort of annual “intent / right of return” statemEnt done. But mom can keep the home, it’s still her exempt asset,
The rub will be that Medicaid will require mom to have almost all her mo income go as a copay to the NH. Essentially mom has zero-none-nada of her $ to pay a penny on the house. So family / heirs will need to pay all property costs for undetermined period of time.
Is this the reason why y’all r looking to sell?
OR
it is a different problem with Medicaid…. Like mom did the LE just recently to her grandsons and Medicaid is considering it to be “gifting” so there’s a huge transfer penalty and it has to be sold but anything that’s a LE sale (before death) has the added complications of determination of % interest of your mom as the tenant owner and your sons each % as the remainderman? Imo figuring out the % is not ever a DIY, you need a tax attorney (LL.M) to do the determination and use this to submit to IRS and also Medicaid.
Or
mom actually sold it via a Warranty Deed (WD) within past 5 years, so its fully owned by the boys & it’s totally in transfer penalty zone?
They are very different problems to resolve ime.
So what’s the backstory on this drama?
FMV as Medicaid is involved is an issue as well. But determination of FMV is imo something you can have input in changing if there is a discrepancy between the tax assessor value and the actual value of the property.
Out of curiosity, y’all did a “gen skip” on the house. Normally parents gift to their kids not the grandkids. Gen skip tends to be suggested by financial planners or estate attys as a way to shift assets to someone (kids) who have no tax liability. To do a gen skip via a LE, isn’t the usual thing either. Did y’all have an FA or estate attorney who does wealth management behind this happening?
If your mom did an LE within a WD, as PolarBear wrote, it’s gonna be 8 types of Hades to get through imo. Did the atty you are working with now do the LE / WD combo?
https://www.rocketmortgage.com/learn/life-estate
The basics of life estate from the article:
Life Estate grantor (grandma) still owns the house and is responsible for taxes and insurance.
Life estate grantor shares ownership of the home with the grantees (grandsons).
Grantor needs approval from grantees to sell or borrow against the house, or revoke life estate.
Title to the house will be transferred to grantees immediately upon death of grantor.
Important issue: how is the deed actually titled? This isn't criticism, but "putting" someone's name on something doesn't describe the ownership interests and/or rights. The actual wording is critical.
Macy, can you get this information, i.e., the specific titling of the granting clause?
Just exactly how that paperwork was done 10 years ago will be central in all this. 10 years ago gets any transfer past the max Medicaid lookback. Whether it’s an LE, or WD, or Quit Claim Deed or even if grannie left the house to the kids via a Testamentary Trust.
If grannie sold 2/3 to grans & kept 1/3 via WD, different problem than LE sold before death having to do % ownership based on grannies actuarial table.
i really hope Macy does an update as it’s an interesting problem.
Verify that the attorney understands Medicaid and their rules.
Personally, I think using a certified elder law attorney (www.nelf.org is where you can find one) is the only way to go. They truly understand what needs to be done to protect the elder and ensure they can receive the care they need by avoiding missteps.
Here's a link to a good article written by a certified elder care attorney about Life Estate and how it protects assets from nursing home costs and Medicaid.
https://ssbllc.com/five-facts-to-know-about-life-estates/
Granda does NOT own 1/3 , her share is based on her life expectancy which decreases after each birthday.
Here are some excerpt from the article:
"Five-year ineligibility period: The transfer is a gift under the Medicaid (MassHealth) rules and the parents will be ineligible for Medicaid benefits to pay for their long-term nursing home care costs for five years following the transfer. Under the current Medicaid rules, once the five-year ineligibility period has passed, the parents would be eligible for Medicaid benefits to pay for the cost of their care, assuming they otherwise meet the eligibility criteria.
The property will be subject to a lien for the life estate Medicaid benefits. It is important to understand that if the parent receives Medicaid benefits, whether in a nursing home or in the community, the Commonwealth will place a lien against the parent’s property. However, if the parent owns a life estate in the property, the Medicaid rules prevent the state from forcing the parent/life estate holder to sell the property during the parent’s lifetime. Upon the death of a Medicaid beneficiary, the state can collect the amount it paid out on behalf of the person from his probate estate. A person’s probate estate consists of assets in his individual name. Because the retained life estate disappears upon the death of the parent, it is not a probate asset and therefore the state cannot enforce its lien against the property under current law. It is important to understand that if the property is sold during the parent’s lifetime, the lien will have to be satisfied from the parent’s share of the sale proceeds."
I am hoping Igloo is about as she is definitely the best at understanding law on some of these rules, which of course may vary state to state, which is why you need a lawyer to advise you.
Hoping others may know enough to inform you more.