Lady Bird Deeds and Protecting a Home from Medicaid Estate Recovery
Summary
Lady Bird Deeds, in some states, provide a way for Medicaid long term care beneficiaries to protect their homes from Medicaid Estate Recovery Programs thereby enabling the beneficiary to transfer their home without penalty to a family member upon their death.
Overview of Lady Bird Deeds (LBD)
A Lady Bird Deed is a formal way to establish co-ownership of a property. A homeowner creates the deed while they are living, and they are known as the grantor or the life tenant. The deed names another person (the beneficiary) who will assume ownership of the home immediately upon the grantor’s death. The beneficiary can also be referred to as the grantee, remainderman or the remainder beneficiary.
A Lady Bird Deed is a type of Life Estate Deed, but it varies from Traditional Life Estate Deeds in one important way. With a Traditional Life Estate Deed, the grantor gives up all their rights concerning the home as soon as they create the deed. With a Lady Bird Deed, the grantor retains all their rights concerning the home until they die. We will discuss why this is important below.
States that Allow LBDs
Before going any further, it’s important for you and your loved ones to know that a Lady Bird Deed can only be used in five states as of 2023: Texas, Florida, Michigan, West Virginia and Vermont. If you live in one of those five states, keep reading for more details about Lady Bird Deeds. If you live somewhere else but are still interested in protecting your home for future generations by preventing it from being sold to help pay for Medicaid Long Term Care expenses, you can jump to the bottom of this article to learn about other ways to protect the home by clicking here.
What They Can and Cannot Do
To understand the importance of Lady Bird Deeds, you first need to understand about Medicaid Estate Recovery Programs. Every state is required by law to try and collect reimbursement for Medicaid Long Term Care expenses after the death of the Medicaid recipient. States do this through their Medicaid Estate Recover Program (MERP). Most often, the home is the most valuable asset remaining in the estate of a deceased Medicaid recipient, so states will force the sale of the home to collect their reimbursement if the home is not protected from the MERP. Reimbursement for long term care initiated by a MERP is also known as “clawback.”
In the five states that allow them (Texas, Florida, Michigan, West Virginia, Vermont), Lady Bird Deeds will protect the home from the state’s MERP. This means you or your loved one can leave the home to your family by using a Lady Bird Deed. To learn about MERPs, click here.
What a Lady Bird Deed can’t do is help you or your loved one become eligible for Medicaid Long Term Care. To qualify for Medicaid, applicants need to meet an asset limit and an income limit. For applicants who are homeowners, their home would almost certainly put them over the asset limit, which is $2,000 for an individual in most states and in most circumstances in 2023. However, the home is NOT counted toward the asset limit in most cases. More about how Medicaid treats the home.
Relevant Medicaid Long Term Care Programs
Lady Bird Deeds may be commonly associated with Nursing Home Medicaid, but they can also be used with the two other Medicaid Long Term Care programs that are relevant to seniors: Home and Community Based Services (HCBS) Waivers and Aged, Blind and Disabled (ABD) Medicaid. That’s because Medicaid Estate Recovery Programs (MERPs), which we introduced in the previous section, are required to try and collect reimbursement for Medicaid Long Term Care expenses accrued through any of the three programs.
How They Work
In short, a Lady Bird Deed protects your home from Medicaid Estate Recovery. It does this by separating the ownership of your home into two parts: while you’re alive and after your death.
• During your lifetime, you (the creator of the Lady Bird Deed, also known as the grantor or life tenant) maintain control of your home and can do whatever you like with it, including sell it. However, if you do sell a house with a Lady Bird Deed on it and buy a new home, you will have to create a new Lady Bird Deed for that new home (if you want one). Lady Bird Deeds can not be transferred.
• After your death, control of the property is automatically and immediately transferred to the person you designated as the beneficiary (also known as the grantee) without the property going through probate.
Probate is the process of distributing your estate after your death, typically through a Last Will and Testament. Many states only try to collect Medicaid reimbursement from items that go into probate, including the five states that allow Lady Bird Deeds as protection from Medicaid Estate Recovery Programs (Texas, Florida, Michigan, West Virginia, Vermont). So, if the property does not go through probate, it can not be used for Medicaid recovery in those states. There are some states that attempt recovery outside of probate (known as Expanded Recovery states), so Lady Bird Deeds will not work as protection from MERPs in those states.
When & How to Create a LBD
It is possible to create a Lady Bird Deed on your own, but it is not recommended. Each of the five states that accept them as a form of protection from Medicaid Estate Recovery Programs has its own set of rules governing these deeds, so we suggest consulting with an Elder Law Attorney or Certified Medicaid Planner before attempting to use one. If you try to create the deed on your own and something goes wrong, it will likely result in your Medicaid application being denied and could lead to a period of Medicaid ineligibility that might last months or years.
When you create the Lady Bird Deed doesn’t matter in terms of Medicaid rules. You can create it any time before you apply or any time after you’ve been accepted, and it will still protect your home from your state’s Medicaid Estate Recovery Program. That’s because Lady Bird Deeds don’t violate Medicaid’s Look-Back Period, which is five years in most states, including all the states that allow Lady Bird Deeds.
The Look-Back Period prevents Medicaid applicants from simply giving away their assets, or selling them at less than fair market value, to get under the asset limit and become Medicaid eligible. State officials will “look back” into your financial records for the five years before your Medicaid application date to make sure you have not given away or unfairly sold assets. But since you maintain control of your home during your life with the Lady Bird Deed, the home is not considered a gift or “given away” because technically it is still yours. More about the Look-Back Period.
Other Options to Protect a Home
If you don’t live in one of the five states that accept Lady Bird Deeds as a form of protection against estate recovery (TX, FL, MI, WV & VT), there are still ways you can protect the home from your state’s Medicaid Estate Recovery Program.
• Child Caregiver Exemption: If your adult child has lived with you in the home for at least two years prior to you moving to a nursing home or assisted living facility, and that adult child provided you with care that allowed you to continue living at home and not go into a nursing home or other institution, you can use this exemption to protect the home from Medicaid Estate Recovery and leave the home to that adult child. More on the Child Caregiver Exemption.
• Sibling Exemption: If your sibling (biological or adopted) has lived in the home with you for at least one year prior to you moving to a nursing home or assisted living facility, and that sibling has an equity interest in the home (meaning they co-own it with you), then you can use this exemption to protect the home from Medicaid Estate Recovery and leave the home to that adult child. More about the Sibling Exemption.
• Medicaid Asset Protection Trust: Any asset placed in a Medicaid Asset Protection Trust (MAPT) is protected from Medicaid Estate Recovery. MAPTs also make those assets exempt from the asset limit, so they can be used to help you gain eligibility, as well. However, MAPTs violate the Look-Back Period, so they must be created well in advance of your Medicaid application date (five years in most states) to actually be helpful when it comes to protecting your home from Medicaid. More about MAPTS.