There are many different ways to facilitate asset transfers, and as a layperson, you are simply not going to be aware of all the possibilities. It’s our job to explain them to you, and to this end, we will look at the life estate in this post.
The Probate Process
You need to digest some background information about the probate process to understand why people utilize life estates. If you use a will as your asset transfer vehicle, it would be admitted to probate, and the executor that you name in the document would handle the administrative tasks.
Probate is a court supervised process, and it would also be necessary if you pass away with no estate planning documents at all.
Creditors are notified about the passing of the decedent during probate, and the executor will start a bank account on behalf of the estate so they can pay final bills. This will require an Employer Identification Number that can be obtained from the Internal Revenue Service.
The assets that comprise the estate will be identified, inventoried, and prepared for eventual distributions to the heirs. This will involve appraisals and liquidation of property in many instances.
If anyone wants to contest the validity of the will, they can make their argument before the court while the estate is being probated. When everything is in order, the inheritances will be distributed to the heirs according to the terms of the will.
All of this sounds pretty harmless, but it takes time, and the beneficiaries have to wait it out. They will not receive their inheritances for about eight or nine months at minimum, and probate expenses eat away at the value of the estate before it is distributed.
Medi-Cal Estate Recovery
Medicare does not pay for long-term care, and most seniors will need some form of professional living assistance. More than one third will eventually reside in nursing homes, and the annual cost for a year in a nursing home in Los Angeles is over $100,000.
Medi-Cal will pick up the tab if you can gain eligibility, and you can qualify as a homeowner. However, the program can place a lien on your property if it is in your direct personal possession at the time of your death because there is a Medi-Cal estate recovery mandate.
Now that we have set the stage appropriately, we can look at the value of the life estate. If you own a home, you can create a life estate, and you would name a “remainderman.” This is a co-ownership of sorts, and for whatever reason, the term applies to people of both genders.
The remainderman would not have access to the property while you are living. You would have total control of the property in every way, so your life would not change at all. After your death, the remainderman would assume full ownership of the property.
This transfer would not be subject to probate, so the time consumption and the expenses would be avoided.
With regard to Medi-Cal estate recovery, property that is held in a life estate would not be looked upon as the direct personal property of the Medi-Cal beneficiary. As a result, the home would be protected during the recovery phase.
Life Estate Drawbacks
The downside of a life estate is the fact that the remainderman would have an ownership interest in the property immediately. As a result, you would not be able to lease, sell, or mortgage the home unless the remainderman is on board.
If you sell the home with their cooperation, you would not get all of the proceeds. They would be split in a manner that would be calculated through the utilization of IRS actuary tables.
Attend a Free Webinar!
We are conducting informative webinars that focus on some of the most important estate planning and elder care topics. There is no charge to attend the sessions, so you should definitely take advantage of the opportunity.
You can see the dates if you visit our Los Angeles estate planning webinar page, and if you decide to join us, follow the simple instructions to register.
- Ideas for Eco-Friendly Estate Planning - February 15, 2024
- What to Do After a Terminal Diagnosis: A Practical Guide - February 14, 2024
- The Importance of Estate Planning for Members of the LGBTQIA+ Community - February 10, 2024