Long-term Care Planning and Life Estate in Family Home

Posted By Jorgensen, Brownell & Pepin, P.C.

14 Nov. 2017

With the average monthly cost of Colorado assisted living facilities hovering just under $5,000.00, many aging individuals grow concerned over their future need for long-term care and how their income will pay for that expensive care. Medicaid coverage may be an option, but individuals seeking Medicaid approval will need to spend-down their assets in accordance with Medicaid rules.

One long-term care planning strategy involves transferring the individual’s real property interest to beneficiaries and reserving a life estate for the grantor. Under this strategy, the elderly individual (grantor) no longer holds title to the real property, but he or she has the exclusive right of possession until the time of his or her death. Transfers of this type are often made by quitclaim deed.

Problems can arise, however, if the interests of the grantor divert from the interests of the grantees. After the execution of the quitclaim deed, the grantor only retains the right of possession and holds no power to sell the property or change the ownership interests. For example, if the grantor can no longer practicably reside in the home and exercise the life estate interest, the grantor may desire to have the real property sold so that he or she can use the proceeds to move to a facility that provides a higher level of care. The grantees, as the owners of the property, would have to agree to the sale and agree to use the proceeds for the grantor’s new facility. Relying on the grantees’ compliance with grantor’s wishes can be extremely frustrating for the grantor – after all, the grantor gratuitously transferred the asset, trusting that the grantees would work together with the grantor to use the asset for grantor’s care.

A recent case decision out of Massachusetts raises an interesting potential solution to the grantor/life estate interest holder’s lack of control over the asset. In Skye v. Hession, the grantor executed a quitclaim deed for long-term care planning purposed, and the grantor reserved for herself a life estate interest as well as a “special power of appointment.” The special power of appointment provision allowed the grantor to appoint the conveyed property to any person as the grantor may specify by deed or will. The grantor then exercised her special power of appointment to reduce one of her daughter’s interest in the property. The Massachusetts Court of Appeals upheld the validity of the grantor’s special power of appointment. Skye v. Hession, 2017 WL 1553186 (Mass. App. April 28, 2017).

Inserting a special power of appointment provision could act as a “security function” in quitclaim deeds executed for long-term care and Medicaid planning purposes. The special power of appointment could protect the grantor in the event the grantor’s interests divert from the grantees’ interests.

Everyone needs to adequately plan for the future. If you need help, call one of our experienced estate and long-term care planning attorneys.

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