23 May STATE POLICY HANDBOOK ACKNOWLEDGES LADYBIRD (ENHANCED LIFE ESTATE) DEEDS DO NOT RESULT IN A TRANSFER PENALTY
As of March 1, 2012, the Texas Medicaid for the Elderly and People with Disabilities Handbook (which is a publication of the policy rules for long –term care Medicaid eligibility) now provides that “a transfer of a person’s home does not result in a transfer penalty when the title is transferred to the person’s …. children, siblings, etc., if the deed is an enhanced life estate and has been approved the regional attorney for the state.” Usually (although there are exceptions to the rule) when an applicant makes an uncompensated transfer within 5 years of applying for long-term care Medicaid there is a transfer penalty creating Medicaid eligibility (in other words, the state does not assist with care costs of the applicant for nursing homes, assisted living, etc. or pay any drug costs).
After the adoption of the final rules regarding estate recovery (where the state can make a claim against the Medicaid recipient’s homestead and other exempt resources after the death of the Medicaid recipient to the extent that Medicaid benefits have been advanced generally for nursing home or assisted living care and drug costs) that became effective in Texas in year 2005, elder law attorneys have recommended various options (including the Lady Bird Deed) to avoid a successful claim of the state. Since Texas only seeks recovery against property that passes by Will or by intestacy, the Lady Bird Deed (which is an Enhanced Life Estate Deed) has become one of the most popular options to pass the homestead (or other exempt real estate) to the children, etc. of the Medicaid recipient instead of re-paying the state for benefits advanced. An Enhanced Life Estate (Lady Bird) deed is a legal document in which one transfers the property to their heirs while at the same time retaining a life estate with powers including the right to sell the property in their lifetime. The Medicaid applicant’s home is generally the asset of most value that does not count as a resource at the time of application (exempt up to $500,000 of equity if single and there is no limit to its value if the applicant is married and the spouse lives in the homestead).
Since the life estate holder retains the power to sell the property, its value as a resource is its full equity value. The full value of the asset is counted as a resource- unless otherwise excluded (such as a home to which the individual the Medicaid applicant intends to return). The Medicaid applicant (if single) must sign a form indicating intent of the applicant to return home.
It should be mentioned that the federal law gives states the option to pursue claims against only items that pass by Will (the option Texas has chosen) or the option to pursue claims against exempt property without regarding to how the property passes at death. So, although this acknowledgement that Lady Bird Deeds are presently fine, it does not mean that the laws will not change in the future. There are other options for prospective Medicaid applicants (usually persons who have inadequate long-term care insurance) may consider.