The Elder Law Forum

The Elder Law Forum By Michael Myers Proposed Life Estate Premature, Ill-Advised

It is common for a couple, in reciprocating wills, to gift each other a life estate in their jointly owned family home, with the remainder to designated children. This deprives the surviving spouse from giving the property to someone other than the agreed-upon beneficiaries.

Life estates are commonly created within pre-nuptial agreements in later-life marriages where one or both spouses have children from previous marriages. Also, they can be used to convey property to intended beneficiaries while providing protection against creditors and lien-holders.

"Should I convey my house to my two children and retain a life estate?" asked a 70-year-old USD Senior Helpline caller (1-800-747-1895; mmyers@usd.edu). She said she was divorced, owns a $170,000 house, and has savings totaling $230,000. Ten years ago she bought a long-term insurance policy that today would pay up to $181 per day for three years.

She lives in a state where her retirement-community-of-choice presently charges $250 per day, $69 per day more than her policy limits. She intends to use the three-year insurance coverage, plus her savings, to bridge the three-year "look-back period" under Medicaid, in the event she should need prolonged institutionalization.

"I want my two children to have the house. I've been told I could convey it to a trust for the benefit of my children and retain a life estate for myself. Is that a good idea?" she asked.

"I don't believe it is," I advised. I said she should not "plan" on being a resident of the retirement community she has in mind. Only 5 percent of Americans over 65 reside in a nursing home at any given time.

Further, her long-term care insurance policy will pay only if her physical or mental condition requires that she be assisted with two or more "activities of daily living" such as eating, toileting, bathing, or ambulating. The insurer will not automatically contribute to three years of residency in an upscale retirement community.

She should use the policy for its intended purpose, as a planning tool and safety net to protect the assets she has assembled during a productive lifetime. At age 70 and in good health, a transfer of the home at this time may be premature and ill-advised.

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