There are different ways to facilitate the asset transfers that will take place after you are gone. It is wise to explore your options so you can make fully informed decisions, and with this in mind, we will explain life estates in this post.
Real Property Transfers
You can use a life estate to arrange for the transfer of real property to someone after you pass away. If you take this action, you would be known as the “life tenant,” and the individual that will be inheriting the property is called the “remainderman.”
As the life tenant, you continue to live in the property as usual, and you are responsible for the expenses that are related to the property. After your passing, the remainderman would assume ownership, and the transfer would not be subject to probate.
This is a time-consuming process that would enter the picture if you leave the home to someone in a will. The probate court would also provide supervision if you were to pass away without any estate planning documents at all.
With regard to the time consumption, the inheritors receive nothing while the estate is being probated, and it will take about eight months at minimum in most jurisdictions. Probate expenses consume a noticeable portion of the estate, and privacy is lost, because it is a public proceeding.
Medi-Cal Planning Implications
Many senior citizens seek Medi-Cal eligibility late in their lives, even if they are Medicare beneficiaries. They take this action because Medicare will not pay for a stay in a nursing home, while Medi-Cal does pay for long-term custodial care.
This is a need-based base program, so you cannot qualify if you have significant assets in your name. However, a home is not considered to be a countable asset for Medicaid eligibility purposes.
This can sound great on the surface, but it is misleading, because Medi-Cal could put a lien on your home after your death. If you establish a life estate to transfer your home, the remainderman would become the owner after your death, so Medi-Cal would not be able to attach the property.
There is one caveat to the above statement. There is a 30-month Medi-Cal look-back period with regard to the transfer of the property. You have to establish the life estate at least five years before you apply for Medicaid coverage.
Life Estate Drawbacks
Before you get too enamored with the life estate, we should look at some of the drawbacks. If you go this route, you would not be able to sell or mortgage the property unless you obtain the cooperation of the remainderman.
And even if you could sell your interest, you would be selling the ability to live in the home for the rest of your lifetime, and this interest would not be equal to a 50 percent ownership interest.
Living Trust or Medi-Cal Trust
You could choose to use a living trust as the asset transfer vehicle for all of the property that will comprise your estate, including your home. This would be a revocable trust, so you could change your mind and dissolve the trust at any time.
Along the way, you would have sole and complete control over all the assets that are held by the trust, because you would be the trustee. If you want to sell or mortgage the home that is technically owned by the trust, you would have the power to do so.
The transfer of the assets to the beneficiaries after you pass away would not be subject to probate, so the probate avoidance advantage would still be present. In addition to the streamlined estate administration, these trusts provide other benefits that we will not get into here.
Assets in a living trust would be counted for Medi-Cal eligibility purposes, but if this is your objective, you could convey your home and other resources into an irrevocable Medi-Cal trust.
As long as you fund the trust at least 30 months before you apply for Medi-Cal, the assets in the trust would not count.
Attend a Free Webinar!
Since you are here, you must be looking for information about estate planning, and we have some great opportunities coming up in the near future. Our attorneys are conducting a series of webinars that will cover some of the most important aspects of the process.
There is no charge, but we ask that you register in advance so we can reserve your spot. You can see the dates and obtain registration information if you head over to our Los Angeles estate planning webinar page.