The question is also sometimes asked in the following manner: If I own real estate, is a lady bird deed needed to obtain Medicaid? The answer is, quite simply, no.
Of course, a lady bird deed strategy (also referred to as an “enhanced life estate deed”) can be important in the Medicaid planning process. But, strictly speaking, lady bird deeds are not going to help someone become eligible for Medicaid in Florida (or anywhere else for that matter).
While enhanced life estate deeds will not help qualify you for Medicaid, it may help reduce the amount Medicaid is paid back as a result of their estate recovery efforts.
Remember, as an Elder law / Medicaid Lawyer, I’m trying to take a holistic approach to the Medicaid planning process. While my primary concern is protecting your assets from immense long-term care costs while you are alive (which we will do using any number of elder law medicaid qualification methods) - I also aim to legally reduce (or eliminate when possible) the amount of money your estate will need to pay back to Medicaid after a medicaid recipient passes away.
So How is a Lady Bird Deed used in Medicaid Planning?
It is in this vein that the lady bird deed is useful - i.e. reducing or eliminating what Medicaid is entitled to after the Medicaid recipient passes away. This is known as a Medicaid lien or “medicaid estate recovery.” After a Medicaid recipient passes, Medicaid has an automatic lien on the estate that individual leaves behind, subject to certain exceptions. In other words, Medicaid becomes a creditor - but only when the Medicaid recipient passes away (assuming they were over age 55).
So, will I lose my house to Medicaid? No. In, Florida, one of those exceptions is the homestead. Because of its treasured position in Florida, the legislature affords the homestead multiple layers of protection against creditors, including Medicaid. So, you don’t even need an enhanced life estate deed to protect the homestead! However, you may still want one as a probate avoidance tool. But before we get into that, let's briefly discuss other types of real estate (i.e. non-homestead real property) and how they are easily within reach of Medicaid.
Lady Bird Deeds and Non-Homestead Real Estate
Have a second home, vacation house, rental or other income producing property? All non-homestead real estate is subject to Medicaid estate recovery. When a medicaid recipient passes away, their real estate becomes part of their estate and therefore comes within reach of creditors, of which Medicaid is usually the largest. Your elder law attorney will need to use other Medicaid planning techniques to get someone with other real-property holdings qualified for Medicaid - but the Lady Bird Deed is perhaps the easiest way to let your heirs enjoy the real estate after the Medicaid recipient is gone.
Lady Bird Deed as a Probate Avoidance Tool
By keeping real property outside of probate, you keep it out of Medicaid’s reach. This is because the lady bird deed dictates who owns the real estate by operation of law, after the Medicaid recipient passes away. It essentially never becomes part of the estate of the deceased - it automatically (after recording the short-form death certificate) passes to whoever is listed as “remainderman,” which is similar to choosing a beneficiary.
DCF does not deem lady bird deed’s a transfer of assets subject to a Medicaid penalty period. This is because the remainderman can be changed or removed at any time. In addition, the property owner need not get written permission to sell the real property, from the remainderman, in an enhanced life estate deed (which is not the case with regular life estate deeds).
As a result, the deed is an incomplete gift, not subject to Medicaid transfer-of-asset penalties.
Avoiding probate is often a worthwhile goal in and of itself. Probating an estate means that heirs must wait longer, and incur additional expenses in order to gain access to what could be their’s in short order. Think of a lady-bird deed as similar to a “pay on death” designation on a bank account (which is how you would have that bank account avoid having to go through the probate process.
So, while a lady bird deed isn’t necessary to qualify for Medicaid in the first place, it is certainly a worthy strategy to discuss with your elder care lawyer when discussing Medicaid planning.