The elder law attorney has several different tools to use to assist a family in keeping the family home when expensive long-term care costs would normally threaten its loss. Because Medicare does not cover long-term care expenses in Texas and all other states, the need to have an elderly parent placed in an assisted care environment, or the costs of home-care services, could turn out to be an expense that will wipe out the family residence and other assets. Sometimes, elder law attorneys will recommend the use of a life estate planning tool as a potential way to protect the family home.
A life estate is a legal concept that allows someone to put the ownership of real estate in his or her name for life only. When that life estate owner dies, the property passes to the holder of the remainder interest. The property thus passes automatically, by operation of law, to the owner of the remainder interest without having to go through probate or any estate administration process. The creation of the life estate is done by deed.
For example, the owner of the real estate can make a new deed conveying full ownership to her son, but reserving for herself a life estate. There is a look-back period of five years for purposes of Medicaid reimbursement, which kicks in when a life estate is created. Therefore, the life estate must be created early enough so that the property will not be vulnerable to attachment in less than five years.
In Texas as well as elsewhere, there may be tax consequences of creating a life estate. Due to complex considerations, it is imperative that someone contemplating a life estate first obtain a thorough review of the situation from an experienced elder law attorney. Implementing the life estate mechanism in the long-term care plan is not always the best option -- each case must be reviewed and evaluated on the particular circumstances and financial facts that exist.
Source: fool.com, "What a Life Estate Is And How It Could Save Your Home", Dan Caplinger, June 8, 2015