Should You Use a Massachusetts Life Estate Deed to Protect Your Home?
Life Estate
A Life Estate is created to protect property from estate recovery, the process by which an individual’s assets may be claimed after death to reimburse the state for certain medical services that were provided for by public health programs, like Medicaid. To protect these assets, a legal document called a Life Estate Deed is created. The Deed establishes one ownership over the property for the remainder of his life, but also creates a future ownership interest in a beneficiary, typically a child. This means that the client maintains control over the property for his lifetime, but when he dies, the property automatically passes to the beneficiaries without passing through probate, and the Medicaid lien placed on the property is automatically terminated.
Avoid Probate and Estate Recovery
This complete protection from estate recovery allows the client to maintain some control over his property. For his lifetime, he can use, occupy, and enjoy the property and remains responsible for maintenance and any expenses, including taxes and insurance (unless he enters a nursing home, at which time his beneficiaries will be responsible for the property’s maintenance). In addition, he can exclude the beneficiaries from using or enjoying the property while he is still alive. If the property in the Life Estate was real estate, the client could even collect 100% of the proceeds if he rented the home. However, he could not sell, mortgage or refinance the house without consent from his beneficiaries, as these types of actions would affect their future ownership.
A life estate deed is not for everyone. Care should be exercised when planning with life estates. There are often unfavorable tax consequences when the home is sold during the life tenant’s lifetime. Additionally, the ownership interest granted to the future beneficiaries may be at risk to the creditors of the new co-owners. Imagine your child filing for bankruptcy or divorce while having this interest in your home.
Under the right circumstances, a Life Estate Deed can be a very effective part of your estate planning. Like most other estate planning documents, you should consult a qualified estate planning attorney to determine whether a life estate deed is best for your estate planning goals. For more information, contact an experienced estate planning attorney at Baker Law Group P.C. at 800-701-0352 or 781-996-5656.