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When you’re wrong, you’re wrong! Life estate issue cleared up

When you’re wrong, you’re wrong! Life estate issue cleared up

Dear Michael: We have been following your columns for years now. We have been reading the debate about “life estates” and how they will be handled by Medicaid and the Department of Human Services (DHS) in North Dakota. We have been told by other people that life estates are still viable in North Dakota and that we have nothing to worry about? – Life Estate Fence.

Dear Life Estate Fence: For once, I am happy to report that I was wrong about the interpretation of the rules in North Dakota. Life estates that have been in place prior to now are still protected under North Dakota rules by DHS. They will not be considered an “asset” versus “income” as I reported in earlier articles.

As such, if your life estate is older than five years from the time of registration of your deed, your property is protected and the only thing that can be attached by Medicaid to pay long-term care costs are the income generated by the property in the income after the five-year waiting period. That’s good news for everyone! Being wrong is a lot easier to admit when it’s in your client’s favor.

This whole thing began when we were talking to an attorney in South Dakota about a life estate for one of my clients. She stated to me that South Dakota was now using life estates as an “asset” rather than an income – even after the five years. To prove her point, she sent me a copy of South Dakota Century Code stating the life estates will be valued for their value to the life estate owner, based on their life expectancy, and that value would need to be used in the calculation of when life estate owners would receive Medicaid benefits. That’s a big change for South Dakota as, much like many other items, we are very similar in how we do things.

Out of curiosity, I went to our own Century Code and found the same exact wording in North Dakota’s Century Code as South Dakota’s.

Coincidently, I got a call from one of my clients a few days later who said his mother had been in a nursing home and he had gotten a letter from Medicaid that they needed an appraisal for the value of the land – in a life estate since 2012 when I helped them do this. In addition, they wanted an appraisal for 2012 as well, which anyone can tell you is impossible to get eight years later. They also stated that based on the younger age of the two of them, this value would be calculated and Medicaid would determine when she would become eligible for benefits.

In other words, exactly what South Dakota stated and what is in our own Century Code. I then read where this law came from and it was part of the Deficit Reduction Act of 2005 signed by then president, George Bush.

At this point, I felt like Chicken Little and started yelling “The sky is falling, the sky is falling” rather than what I should have done and contacted an estate attorney familiar with this type of planning and how North Dakota was handling it.

I received two things last week. One, I received a phone call from Greg Larson, an estate attorney here in Bismarck, telling me that North Dakota DHS still does not include the value of a life estate in determining eligibility for assistance.

Next, I called my client who was facing this dilemma and he said DHS Medicaid did an about face on their demands, accepted a valuation based on County Values and dropped the need for a current appraisal.

He also forwarded me a document from the DHS itself under “Excluded Assets 510-05-70-30 NDCA 75-02-02.1-28” that specifically lists Life Estates under paragraph 19. This was dated 3/01/20 from the Department of Human Services. You can look it up online and clearly see that life estates are excluded assets after five years.

What does it all mean? Obviously, the rules of life estates longer than five years are in good standing with the ND Department of Human Services and anyone having this shouldn’t worry. So I was wrong and when you’re wrong, admit it!

One thing to remember is rules laid out by ND DHS are just that – rules. Rules, unlike laws, can be changed without legislative action. We have all the pieces necessary to change the rules, but it hasn’t been done – yet. Minnesota did it in 2001, South Dakota did it in 2018 – when or if it will happen here, no one knows.

However, if you complete your estate planning with a life estate now – under their current rules – you won’t lose this valuable planning tool – the life estate.

Michael Baron provides estate planning guidance at Great Plains Diversified Services in Bismarck, North Dakota. Email him at KeeptheFamilyFarm@gmail.com.

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Michael Baron provides estate planning guidance at Great Plains Diversified Services in Bismarck, North Dakota.

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