Life Estates In Wisconsin, After 2014
Many people are generally familiar with the concept of Life Estate Deeds. Very simply stated, often what a Life Estate Deed says is that the owners of the property (for example, the parents) reserve or retain a lifetime interest, known as a Life Estate, which allows them the ability to continue living at the property, but also subject to their ongoing obligation to pay for the real estate taxes, insurance, and other costs of occupancy; the Deed then provides a remainder interest, to the next set of owners (for example, the children). A chief advantage of the Life Estate is that it is relatively simple and inexpensive. Prior to changes in the law in 2014, the Life Estates also worked fairly effectively to protect those assets from nursing home cost, provided they were completed at least 5 years prior to the time the person needed to apply for Medicaid to pay for the nursing home costs.
Effective August 1, 2014, the laws regarding Medicaid and Life Estates changed. A person can still do a Life Estate, and as long as it is properly done 5 years prior to the time of applying for Medicaid, the property is still not considered an available asset at the time of Medicaid eligibility. However, here’s where the change came in: Now, the State has the ability to assert a lien or a claim against part of the property. That part is determined by the value of the remainder interest, so not the entire value of the property. But under the actuarial or life expectancy tables used by the State, for a 90 year old person, that percentage is still nearly 30% of the value of the property. For this reason, Life Estates have declined in favor with many people.
A substitute arrangement is often considered, known as an Irrevocable Trust. The Irrevocable Trust works fairly well to protect against not only having the assets counted at the time of Medicaid eligibility, but also shielding the property from any lien, claim, or estate recovery, so long as the trust is completed at least 5 years prior to any need for Medicaid eligibility.
The disadvantage of the Irrevocable Trust is that it is a bit more complex, and more expensive.
If you have questions regarding the suitability of the Life Estate vs. Irrevocable Trust for yourself, we encourage you to call the office and schedule an appointment to discuss this with Attorney Grosskopf.
Submitted by: Attorney Peter Grosskopf, Grosskopf Law Office, LLC