Posts Tagged ‘Georgia’

Understanding life estates may be essential if protecting the home (or other real property) is an important goal. Getting the concept down, however, can be a bit confusing. Confusion be gone! Read on!

Blame the English for our confusing real property law. I am convinced that the concepts involved in this article were invented in 1095 at Ye Whyte Horse on Thames Taverne four hours after closing time and some of the barristers had gotten a bit into their cups.

Lately, many have been asking about so-called “Lady Bird Deeds.” I’ll explain below . . . but you are going to have to read the whole article in order to understand.

First, take a look at other types of ownership . . . it might make understanding life estates easier.

Fee Simple

Most people think of real property ownership as fee simple. Someone with fee simple title completely owns the property. She can sell it, give it away, rent it, use it as security on a loan and do pretty much anything she wants with it (that isn’t otherwise illegal, of course). She is also responsible for paying the taxes on the property and any debts encumbering the property. The property is subject to the claims of her creditors. When the owner dies, the property passes through her estate (as directed by either a will or the state laws of intestacy).

Tenancy in Common

If two or more people own property the property is likely tenancy in common. Think of it something like a partnership among the owners. Each can use the property (unless they have a contract to the contrary). Each can sell his share, give it away, and use it as security for a loan. If one owner dies, his share passes as directed by his will or the laws of intestacy. Creditors can claim against his share. InGeorgia, a married couple is presumed to own property as tenants in common, although they can make other arrangements in a deed.

Joint Tenancy With Rights of Survivorship

This type of ownership might seem similar to tenancy in common, but it isn’t. Initially it looks like a tenancy in common, but if one owner

dies, the other owners take his share (divided among themselves). Sort of a “Last Man Standing” game because the property may end up completely owned (in fee simple) by the last surviving owner. Incidentally, in North Carolina, a married couple is presumed to own property as “tenants by the entireties” . . . which for purposes of this discussion acts the same as a joint tenancy with rights of survivorship (although they can opt out).

Now For Life Estates . . .

If one person owns the right to occupy and use property for her remaining life (she is called the “life tenant”) and the title specifies that the property passes automatically at the instant of the life tenant’s death (these folks are called the remainder interests . . . in the less gentle times of about 15 years ago they were called the remaindermen) the result is a life estate. Many folks call it “life time rights.”

While the life tenant has a right to live on the property or perhaps to collect rent on the property, she also has the responsibility of keeping it up and paying taxes on it.

Although theoretically a life tenant can encumber her life estate or sell her life estate, all she can do is dispose of or restrict whatever it is she owns . . . a life estate. No banker in his right mind will lend against a life estate because when the borrow dies . . . poof! . . . so does the banker’s security. The property passes free to the remainder interests. Same thing happens with respect to the life tenant’s creditors. Poof! Gone. Now don’t get excited . . . if the life tenant owned the property in fee simple and encumbered it before setting up the life estate the creditor isn’t going anywhere until someone pays up!

How To Set Up A Life Estate

Two ways. A fee simple property owner can set up a life estate for himself by conveying a remainder interest in the property to the intended remainder interests. The deed may say something like “I, Falstaff, the Grantor give Blackacre to Prince Hal, but retain a life estate in Blackacre.”

A way to set up a life estate for another person is for a fee simple property owner to convey property to another person as the life tenant and to yet another person as the remainder interest owner.  The deed may look like this: “I, Hotspur, convey Blackacre to Falstaff for life, with a remainder interest to Prince Hal.”

Will Medicaid Count a Life Estate for Eligibility Purposes?

In Georgia a life estate interest is a Medicaid-countable asset unless the property itself is not countable for some other reason (probably because it is the primary residence). In North Carolina a life estate is not countable . . . it simply renders the property regardless of value or size or type as a noncountable asset for Medicaid purposes.

Can the State Collect On Life Estate Property?

No. That is the beauty of a life estate. North Carolina only collects against probate property (and a life estate is not probate property . . . remember, it passes automatically at the life tenant’s death). The Georgia Department of Community Health says they can do it, but they never have and, unless the General Assembly drastically changes the law, they never will (Hint: read above about how a creditor goes “Poof!”).

Are There Other Medicaid Problems?

Yep. Remember that if you transfer something valuable it will not count as an asset for Medicaid (you don’t own it anymore, after all!). However, the transfer will raise issues of whether a transfer penalty should apply. If Falstaff transfers $100,000 cash it will not count because he does not own it; however . . . in Georgia it will count as a transfer penalty of about 20 months and in North Carolina about 16 months if Falstaff applies for Medicaid within five years of the transfer.

The problem with setting up a life estate is that most of the time something valuable is being conveyed. For example, if Falstaff is 70 years old, Medicaid uses an actuarial chart that shows Falstaff’s life estate to be worth about 70% of the value of the property, and Prince Hal’s remainder interest to be worth 30% of the property value.

If Blackacre is worth $100,000 and Falstaff sets up the life estate by transferring the remainder interest to Prince Hal, then Falstaff has transferred property worth about $30,000 (assuming Blackacre is worth $100,000). If Falstaff applies for Medicaid within five years he has a $30,000 transfer issue to deal with.

On the other hand, Falstaff could have sold Prince Hal the remainder interest and there would be no problem.

One planning strategy that is occasionally used is for Falstaff to buy a life estate. If he pays $70,000 for the life estate in Blackacre, he will pay fair market value so there will be no transfer penalty. Further, in North Carolina the life estate won’t be countable as an asset (it will be in Georgia unless it is his residence).

A Final Life Estate Problem

The last paragraph sounded pretty neat, hunh? Not so fast. The rules slow that up a bit by saying that if the life estate purchased was in property that was “the home of another person” then Falstaff would actually have to live in the property for at least 12 continuous months. If he doesn’t live there 12 months or more, there will be a transfer penalty on the purchase even though he may have paid fair market value. If the property was not the home of another person, Falstaff should be OK.

Flying to the Rescue (From Texas?): Lady Bird Deeds

I have no idea why they’re called Lady Bird Deeds or if Lady Bird Johnson used them (although her husband was one of Medicaid’s Founding Fathers).

A Lady Bird deed looks like a standard life estate deed at first glance, except that the Grantor retains the right to change his mind or give the remainder interest to someone else. “I, Falstaff, give Backacre to Prince Hal, but I retain a life estate in Blackacre and further retain the right to cancel this deed or to give the remainder interest to any other person so named.”

Would you pay Falstaff money for the remainder interest? Of course you wouldn’t. The remainder interest is worthless because Falstaff could always change his mind. On the other hand, if Falstaff dies without changing his mind, Prince Hal will automatically take Blackacre.

In North Carolina, because the remainder interest has no value Falstaff has not made a valuable transfer and there is no penalty. Further, on his death the property should pass free of estate recovery. Lady Bird deeds have worked fine for years. They do make me a bit nervous . . . they seem just . . . too easy. I’ll use them, but only if nothing else will work.

Georgia has an open season on Lady Birds. They don’t work. Period.

Coastal Senior is a monthly periodical covering the South Carolina and Georgia low country.  Bob Mason is its legal columnist.

For many people, Medicaid may be the only financing option for nursing home level of care. Medicare has limited benefits. Most people do not own long term care insurance. And for most, private paying $6,000 a month is not an option.

Qualifying for Medicaid is another matter. It can be difficult . . . or it can be easy. Here is the easy answer along with some free legal advice. Fix up the house, buy a new car and simply spend the rest down on the spouse’s nursing home care. When everything has been spent down, go apply for Medicaid.

Is that the smartest approach? No. But the advice was “free”! Also, the nursing home and the Medicaid people in Atlanta will love you.

The better way just may be a bit more difficult. While every case is different, many strategies can save a tremendous amount of money, not to mention aggravation and worry.

The answers do not come easily. As the United States Supreme Court observed in the Schweiker v. Gray Panthers case, the “Byzantine construction” of the Social Security Act (of which Medicaid is a part) makes the rules and regulations “almost unintelligible to the uninitiated”.

You’ll need a guide with the knowledge and experienced to shepherd you through the process.

In addition to a thorough understanding of the nuances of the Medicaid rules, many of the successful strategies require an advanced understanding of trust law, taxation, real property law and the interconnections among Medicaid and other programs (VA benefits, for example).

Is it necessary to hire an attorney to complete a Medicaid application? No, not if the “easy” answer mentioned above will suffice.

Will people advise that it is not necessary to hire an attorney? You bet! Occasionally it is someone with a local Department of Family and Children’s Service office. More often it is a nursing home.

The problem with that sort of advice is both parties have a vested interest in keeping someone on “private pay” as long as possible. It is not in their interest to move someone to Medicaid.

Further, many, if not most, nursing home business office staff who offer to complete (sometimes they’ll insist on completing) a Medicaid application do not have more than a basic understanding of the complex rules and advantageous strategies available.

Also, neither has the knowledge, skills and ability, much less a law license, required to draft trusts, devise appropriate estate plans and stand by to advocate for you (in court if necessary) should the need arise.

Finally, if a lawyer is “the way to go” keep in mind that lawyers, like doctors, are not all the same. A great attorney in one area of the law may not have any idea of what to do with Medicaid rules that are “unintelligible to the uninitiated”. Ask for references, ask how many similar cases have been handled, ask for credentials and certifications and satisfy yourself they know what they’re talking about and are ready to get on your side.

Coastal Senior is a monthly periodical covering the South Carolina and Georgia low country.  Bob Mason is its legal columnist.

“Will the nursing home take my home?” is the question elder law attorneys constantly field.

The answer: “Maybe, maybe not, but probably not right away.”

What these people are worried about is something called “estate recovery”. In Georgia it is taking on some life and promises litigation. The current Big Question is whether the state can recover on a Medicaid lien on a life estate or other “nonprobate” property.

Estate recovery is a procedure Congress ordered in which Medicaid attempts to recover all or a portion of the benefits paid with respect to an individual from that individual’s assets upon his or her death.

Congress Offered Some Choices

Congress allowed states the option of recovering against probate assets only or against all assets. Probate assets are those assets that pass through a person’s estate and under the terms of a will (if there is one). Nonprobate assets are assets that pass pursuant to terms independent of an estate (for example, life insurance policies that name beneficiaries other than estate, joint tenancy with rights of survivorship bank accounts, or life estates in real property).

What The General Assembly Chose

The General Assembly enacted a statute to allow the Department of Community Health (DCH) to “make claim against the estate of a Medicaid recipient”.

Most elder law attorneys believe the General Assembly opted to confine estate recovery to the probate estate. First, from the clear words of the statute, it chose not to expand the definition of “estate” beyond the traditional probate estate. The way one “makes a claim against an estate” is before a probate court, and a probate court will only have jurisdiction against a probate estate.

Second, the General Assembly did nothing to address the technical manner in which non-probate assets could become part of a probate estate. For example, to make what is left of a life estate after the life estate holder has died a probate asset would require a number of amendments to ancient Georgia real property law. Under Georgia law, once a life estate holder has died, the property is free of the deceased life estate holder’s creditor claims. It is gone.

What DCH Chose

DCH elected to use the harsher method and to attempt estate recovery against all assets – ignoring (many believe) the wishes of the General Assembly.

However, Congress gave the states a choice. The General Assembly spoke. The law is well settled in Georgia that administrative agencies (like DCH) must remain within the boundaries set by their master (the General Assembly).

The law also provides exceptions to estate recovery when hardship can be proven. For example, if the deceased is survived by a spouse or a minor or disabled child.

Advance planning is wise if nursing home financing is of any concern. Avoiding or mitigating the effects of estate recovery makes advance planning particularly critical.

Finally, you should always seek assistance from qualified counsel if facing estate recovery. Estate recovery is tricky business. Make sure your attorney understands it or associates someone who does.