Dear Mr. Premack: My parents left me their property via a Lady Bird Deed, but my sister lives in the house and has for over a year, and she has not worked in years nor cared for my parents. I am the only one on the Lady Bird Deed, but I understand if my mom was receiving Medicaid the State of Texas will go after the property. The Elder Law Attorney we saw in 2008 told us this would protect the property from estate recovery. Now I read on-line that the State of Texas will come after the property to recover Medicaid funds spent on my mom anyway and the Lady Bird Deed does not protect the property from having to be sold with the money being returned to the state UNLESS a son or daughter has been living at the home for over a year with no income. Is this true? – ADC
A Lady Bird Deed is an expanded form of Life Estate. Your mother has all the rights that exist under a traditional Life Estate arrangement as well as the right to sell the property and to cancel your right to inherit during her lifetime. This arrangement is used under the Medicaid system to avoid MERP (the Medicaid Estate Recovery Program) because the arrangement avoids transfer penalties under the Medicaid rules.
MERP itself has limited legal rights under Texas law. They may bring a claim to recover money spent by the state on a Medicaid patient (like your mother), but that claim may only be brought in probate court after the patient dies when his or her Will is admitted to probate. The claim is paid from the deceased patient’s remaining assets, which may require that the house be sold so the claim can be satisfied.
A Lady Bird Deed transfers title to the house without reference to a Will and without probate. Thus, the state has no forum in which to bring a claim, and the deceased patient legally does not own the house after the moment of death. Whatever you read on-line was incorrect; the State of Texas still reluctantly honors Lady Bird Deeds as a MERP avoidance technique because the law limits the State’s options. Your reference to “a son or daughter” living in the house for over a year with no income is an inaccurate mash-up of other legal ways to avoid MERP. Check my book The Senior Texan Legal Guide (edition 6.0, at amazon.com or bn.com) for those exceptions.
Paul Premack is a Certified Elder Law Attorney practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, March 19, 2012