I Have a Will. . . Is That All I Need?

For many, understanding their last Will and Testament and what it is intended for is complicated.  In many cases, having a Will completes their need for simple estate planning.  A Will is a direction to a probate court as to how and to whom your estate should be divided upon your passing.  However, complications arise for some who need more than just a direction.  Their goals may need to be more directed at limiting the number of assets that actually come into the probate estate.  There also may be tax benefits for setting up trusts for high net-worth individuals.  However, the need to limit the probate estate is especially high for the millions of Americans who may one day end up on Medicaid.  

The problem comes from a program called the "Medicaid Estate Recovery Program" or (MERP).  Under MERP, the Texas Health and Human Resources Commission or "HHSC" is directed to place a claim against a person's probate estate to reimburse the state for payments made toward that person's healthcare during his or her lifetime.  HHSC is a creditor under the MERP program and is entitled to collect from the "probate estate."  The key here, at least for now, is that HHSC can only place claims against the property that is within the probate estate.  This creates great planning advantages for people needing to utilize Medicaid. 

Unfortunately, many think that because they have a Will, their biggest asset--the family home--will be protected and be left to their loved ones when they pass.  This could be true, assuming they do not go to a nursing home or otherwise need to use State Benefits during their lifetime.  The truth is; however, if your home is left to your loved ones by a Will, then it is in jeopardy of being taken by MERP.  The Will commands the home to be part of the probate estate--it's simply what it's designed to do.  

Luckily, there is another way to protect your home and ensure it passes to your loved ones outside of your Will.  The tool often used is called a "Ladybird" deed or Vesting-On-Death deed.  This is a special type of deed which reserves in the grantor an enhanced life estate.  The provisions are such that HHSC will continue to allow the homestead exemption for the Medicaid applicant, while also allowing the home to pass on outside the probate estate.  In other words, Medicaid cannot touch the house when the applicant passes.  

To learn more about this and other planning strategies, contact my office for your estate evaluation.