01 Jun SUCCESS STORY OF THE MONTH – WHERE THERE IS NO WILL THERE IS A WAY
Married couple has no estate planning documents (no Will, no power of attorney, etc.) and the husband has lost mental capacity (you cannot sign a Will, power of attorney, etc. if you lack sufficient mental capacity). Husband is institutionalized and it is anticipated that he may soon apply for long-term care Medicaid so that the government will assist for the payment of his nursing home bills. The most valuable asset of the married couple is their homestead. Although the homestead will not count as a resource if the husband applies for Medicaid, the state will make a claim for reimbursement (to the extent Medicaid benefits are advanced) if he survives his wife (if the spouse who lives in the community survives, it is one of several exemptions from a successful claim of the state). Wife would like their home (or the proceeds therefrom) to pass to their daughter instead of possibly the state. Wife has mental capacity. Since wife initially had no Will, her interest in the home would pass to her husband (her only child was born of her marriage) under Texas intestate (without a Will) succession laws. However, even if wife signed a Will, she doesn’t presently have the authority to handle his community property interest in the homestead. So, the first goal is to get wife the authority to act on his behalf regarding such community property. Usually, when a person lacks mental capacity and has no power of attorney, most jump to the conclusion to seek guardianship. However, guardianship is expensive (at least two attorneys involved, annual accounting to the court, must get court approval to transfer the property, etc.). There is a less restrictive and less expensive alternative – community administration. As the community administrator, the wife can sell or transfer the homestead without further approval of the court (although it might be advisable to get court approval if she were to transfer the property to herself due to self-dealing issues likely to be raised by a title company). Furthermore, a title company should be contacted prior to such transfer as it could also raise other issues (i.e., a surviving spouse generally has a life estate under the Texas Constitution). So, once approval of the court to grant community administration and the title company as to satisfying any title issues regarding transferring the community property interest in the homestead to wife or doing a joint Ladybird Deed (if the title underwriter will not insure title for the transfer to the community administrator), the next goal was for the wife to have some estate planning documents (i.e., a Will or a trust usually if no Ladybird Deed was executed) whereby the husband is not the direct beneficiary of the homestead which would otherwise be subject to the Medicaid Estate Recovery Program. If there was a problem with the transfer or the community administrator (wife) signing a Ladybird Deed (see description of such deed in this month’s newsletter), then guardianship could be considered.
One estate planning option for wife is to create a Will with a contingent supplemental needs trust for the benefit of husband if husband survives so the assets in her name would not be subject to estate recovery but could be used for the benefit of husband without jeopardizing Medicaid. If husband predeceases wife, then the trust would not be funded. This would be consistent with the laws of intestacy (as husband is the beneficiary other than being held in trust for husband) and the Medicaid rules. Other possible options (especially if husband predeceases wife) are: (1) wife to do a Ladybird Deed (which would protect the home from Medicaid estate recovery if she should apply for Medicaid) or (2) an asset protection trust to give her the flexibility of selling the home without having to spend down the proceeds if she should ever apply for Medicaid subject to certain limitations.
Of course, it would have been so much simpler even if husband had some relatively basic estate planning documents. However, even though husband had neither a power of attorney nor a Will, there is a way!