I have counseled several clients to use a what is called a Lady Bird Deed to protect a home from Medicaid recovery. [also see What Is A Transfer on Death Deed] The typical situation is that a parent or other loved one is elderly and has become so sick with an ailment of some sort that they cannot live by themselves anymore. The family would like to access Medicaid benefits to help pay for some sort of assisted living or nursing home which can be very expensive. But in order to qualify for Medicaid benefits the applicant cannot have more than $2,000 in assets. However having said that, there are assets that are exempt from the $2,000 limit, and the largest exemption is the applicant’s homestead. Typically the person’s homestead, i.e. their home, is by far their largest asset, perhaps their only asset of any real financial significance. (It also may have significant personal emotional value to the family in general, for example a family farm.)

Well, if the person were to sell their homestead, then those proceeds would be counted towards that $2,000 limit. So basically all that money would have to go to paying for living expenses before they could qualify for Medicaid. They could give the homestead to a family member, but there is a five year look back period that the government can use to make that asset still be part of the $2,000 limit.

A Lady Bird Deed is the standard method in Texas to solve this problem. Such a deed, which must be filed at the courthouse, passes the property to whomever (typically one or more family members) upon the death of the grantor. This way the home stays out of probate which is often where the government goes to look for any assets to recover from the Medicaid benefits that were paid out. Also, just as importantly, a Lady Bird Deed is completely revocable. This prevents there being any kind of a legally recognized property transfer. And this means it is not part of the five year look back period for transferred assets. In other words, using a Lady Bird Deed will not prevent someone from qualifying for Medicaid benefits. Likewise, when the person creating the Lady Bird deed passes away and the property passes fully to the beneficiaries Medicaid cannot go after the property to try to “clawback” assets to get repaid for any of the benefits paid out during the deceased person’s lifetime.

In summary, using a Lady Bird Deed is a relatively inexpensive and easy way to save someone’s homestead from being completely devoured by expenses that could be substantially covered by Medicaid.