February 21, 2023
Does Lady Bird Deed Have a 5-Year Rule for Medicaid Purposes?
In this episode of Berry’s Bites, Chris Berry answers the question: I have a Lady Bird Deed (I’m in MI and did this 3 years ago) and my understanding is that you still have to do it 5 years before you receive Medicaid, just like a Trust. Is that incorrect?
Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.
Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.
Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.
With the use of legal structures like revocable living trusts, Castle Trusts (asset protection trusts), Chris Berry and Castle Wealth Group can help your family plan, protect, and preserve what is important through their Retirement and Legacy Blueprint Process.
For more info visit:
https://castlewealthlegal.com/home
https://michiganestateplanning.com/
Episode Transcript:
I have a Ladybird deed. I mean, Michigan did this three years ago, and my understanding is that you still have to do. Five years before you receive Medicaid, just like a trust. Is that incorrect?
Here’s my answer. Yes. Incorrect. So what a lady bird deed is, is a type of deed that says it’s in your name while you’re alive and well. And then upon death it avoids probate. And here’s the big thing, is it avoids estate recovery for Medicaid purposes. So the person’s mentioning Medicaid and understand that in Michigan, Medicaid’s only going to cover nursing home costs.
It’s not gonna cover assisted living, it’s not going to cover home care. It’s only going. Cover nursing home costs. Average seen in nursing homes about two and a half years. Uh, one outta two individuals will need nursing home care, and the average cost in nursing home right now is about 10 to $15,000 a month and Medicaid.
Is a governmental program that it will help pay for nursing home care. But to qualify for Medicaid, a single individual can only have $2,000 worth of accountable assets. A married couple, they’re gonna make you cut your assets in half and most you can have $120,000. And then Medicaid looks back five years to see if you moved any money around.
And if you have, there’re gonna penalize you. So one of the big things that we do a lot of times is a asset protection trust called a castle trust. That starts the five year look back period. And so if we move assets into the Castle Trust, we make it five years before we need a nursing home, then everything inside of the trust is protected from that nursing home and Medicaid spend down, including real estate, and also you’d be able to sell the real estate and the proceeds of the sale would remain in the trust.
Now with real estate, there’s two things we do. We either deed it to the castle, , or if we’re not doing a castle trust, then we do what’s called a lady bird deed. And what a lady bird deed is, is this type of deed, again, it’s in your name while you’re alive. And well, you can sell your house, you can refinance, you can do whatever you want.
You pass away. It avoids probate and also avoids the state recovery. And the other thing to keep in mind, and I’ll talk more about a state recovery in a second, but the other thing to keep in mind is that your primary reside. As long as it’s valued less than $500,000, uh, adjusted for inflation. Your primary residence is exempt for Medicaid purposes, meaning you could have a $500,000 house and as long as say you’re a married couple with less than $120,000, one spouse would be able to qualify for Medicaid.
So the home is exempt in Michigan. But here’s the thing, and this change happened, I wanna say about 2014. What they said is, okay, great, your home is exempt while you’re alive. But upon death, if you were to pass away and the home goes into probate, then boom. Now the state of Michigan can slap a lien on that, and that’s what.
Medicaid estate recovery is, is they can recover from the estate, whatever ends up in probing. And so what we see on our end is a lot of people, like they have beneficiary designations on, on most of their investment accounts and life insurance and things like that, but they forget. To handle the house. So the house ends up in probate.
And then if let’s say Medicaid paid six months worth of benefits, let’s call it $60,000, now they’re gonna slap a $60,000 lien on that home to recover whatever Medicaid paid out in terms of benefits. And so this is where the Ladybird deed comes into play because, The Ladybird deed says, keeps the home in your name while you’re alive, meaning it’s exempt while you’re alive, but then upon death, it avoids probate and thereby avoids that estate recovery.
And this can be done if you had a loved one in a nursing home right now. So the question is, I did this three years ago. Is there a five year look back period for Medicaid, for Ladybird deed? And the answer is no. There’s no lookback. As long as it’s a primary residence value, a less than $500,000 adjusted for inflation.
We can do a lady bird deed where it is exempt while you’re live for nursing home and Medicaid purposes, and then upon death avoids probate and avoids a state recovery. And really just depends on what your goals are and what you’re trying to accomplish. Whether we would do a lady bird deed or whether we a deed it to an asset protection trust.
If you have more assets that you want to protect in addition to just the house, then typically. Set up an asset protection trust like a castle. Trust indeed, the property to the trust. Also, it gives us more flexibility with the trust because we could sell the property. Let’s say we were in assisted living and we didn’t want to pay for the upkeep of the house, or we didn’t really have a purpose for the house anymore.
By doing it inside of the trust, the proceeds sale would remain protected. Versus if you’re to do a lady bird deed, now you’ve taken this exempt asset and turned it into accountable asset. So, uh, great question on lady bird deeds. Always happy to. Talk about them. Uh, they’re one of the best planning tools we have.
Super easy to set up, very straightforward. Like I said, we do a ton of those. So real estate, a lot of times it’s very important to protect the family home. Hence we’ll either do a lady bird deed or we’ll deed it to the as protection trust. So hopefully that was helpful.