An estate for life! (Or, the life estate.)

As many farmers and ranchers consider retirement, a question frequently asked is about the intersection of retirement income, assets, and health care costs.  When this question is asked, it is immediately followed by “but my neighbor kept their land and is on Medicaid.  How does that work?”

While I cannot speak for every possible estate plan out there, the most likely answer is the use of a life estate.  The formal definition of a life estate is an estate that is held for the duration of a person’s life and then passes to the remainderman.  What is the plain English definition?

That requires a bit more words.  In a life estate, the owner of property deeds the ownership to another person (“remainderman”, which for clarity sake, can be a woman or multiple people) but retains an income interest for the remainder of his or her life.  In other words, the “owner” controls the property for the remainder of his or her life, including receiving income from the property, but at the time of death, the property automatically passes to those people named by the owner when he or she made the life estate deed.

Why do some people employ a life estate deed?  In order to qualify for Medicaid.  But it can’t be that simple, can it?

No, it can’t.  First, Nebraska Health and Human Services employs what is termed a “look back period” to determine if any assets were transferred by the applicant at less than fair market value.  This look back period is 60 months, or five years.  If any transfers, such as a life estate, occurred within 5 years of the application for Medicaid, a person is denied Medicaid coverage for the number of months the fair market value of the asset would provide care.

Also, keep in mind that a life estate is irrevocable.  You cannot change your mind about the life estate deed.  The only exception to this is if the remainderman also agree to revoke the life estate deed, which is not likely to occur.  Additionally, the remainderman have an ownership interest in the property.  That means creditors of the remainderman can possibly come after the property.

Obviously, there is much more to this and the above is for informational purposes only.  If you are a South Dakota or Nebraska farmer or rancher and have questions, feel free to contact us.

Emblements, Not Implements.

Trust me on this, the doctrine of emblements is relevant to the transfer on death deed we discussed earlier this week.  To explain why, it is necessary to discuss what the doctrine of emblements is.

An emblement is defined as annual crops produced by cultivation.  Thus, an emblement is corn, soybeans, or the like.  The doctrine of emblements is important because it addresses ownership of annual crops between the time they are planted and the time of harvest. 

The doctrine arises most often during life estate issues because the doctrine is applicable when a tenancy is of an uncertain duration.  A life estate is of an uncertain duration as the life estate terminates at death.  As a result of the doctrine, when a life estate tenant dies between the time annual crops are planted and harvested, the crops and resulting profit belong to the estate of the life estate tenant.  The crops and resulting profit do not belong to the person or entity who inherits the land where the crops are growing.

How is this relevant to TOD deeds?  Nebraska has a special provision in its statutes which allows a transferor in a TOD deed to designate whether crops growing at the time of the transferor’s death are transferred to the transferor’s estate or to one or more of the designated beneficiaries listed on the TOD deed.  This statutory provision is because the doctrine of emblements.

Confusing?  Or just have questions about other beginning farmer or succession planning issues?  You are welcome to contact us because we’re here to help.