Medicaid, Lady Bird Deeds, and Life Estates: What Real Estate Owners Often Get Wrong

For families trying to protect real estate while planning for long-term care or Medicaid eligibility, the internet is full of quick-fix advice:

“Just put the house in your kids’ names.”
“Do a life estate, it avoids probate.”
“Use a Lady Bird Deed, it’s the best of both worlds.”

But in New York, these strategies are not always available or advisable. And more importantly, what sounds simple online can create complications that are hard to undo.

Let’s take a closer look at the real risks of using deeds and life estates for Medicaid planning and what better alternatives may exist.

Life Estates: What They Are and What They Don’t Do

A life estate allows a person (often a parent) to retain the right to live in the property during their lifetime, while granting the “remainder interest” to someone else (typically children). When the parent dies, full ownership passes automatically to the remainder owners. No probate required.

This sounds appealing. But in practice, life estates come with significant trade-offs:

You lose control over the property. You can’t sell or refinance without the remainder owners’ consent.

You trigger an irrevocable gift for tax and Medicaid purposes when the deed is signed.

The property is still countable under the Medicaid lookback period if transferred within five years of applying for nursing home benefits.

If the remainder beneficiaries have creditor issues, lawsuits, or divorces, your home may be exposed.

Once created, life estates are hard to undo without cooperation from all parties.

For families focused on flexibility and protection, a life estate deed may close more doors than it opens.

What About Lady Bird Deeds?

Lady Bird Deeds also called enhanced life estate deeds, do offer more flexibility. They allow the grantor to retain the right to sell or mortgage the property during their lifetime, and the transfer to heirs only takes effect upon death.

Sounds great, right?

The problem?
Lady Bird Deeds aren’t recognized in New York.
They’re valid in places like Florida and Texas but not here.

That means if you’re reading national estate planning articles or getting advice from out-of-state advisors, what they recommend may not even apply in your case.

Why This Matters for Medicaid Planning

We often meet families who created a life estate deed years ago, thinking it would protect the home from Medicaid or help them avoid probate. But when the time comes to sell the home, apply for benefits, or make repairs, they realize they’ve lost flexibility.

In some cases:

The parent can’t access equity to pay for care

The kids don’t agree on what to do with the home

Medicaid looks back and counts the transfer as a gift, delaying or denying eligibility

And fixing it? Often involves court approval, family cooperation, and legal costs that could’ve been avoided with a better plan.

A Better Way: Use a Medicaid Asset Protection Trust (MAPT)

In most cases, a properly drafted irrevocable Medicaid trust offers better protection and more flexibility than a life estate:

You retain the right to live in the property for life

You can still receive rental income, if applicable

The house is not counted as an asset after five years for Medicaid eligibility

The trust can sell the house and buy a new one without restarting the lookback period

You get a step-up in basis at death, reducing capital gains for your heirs

And most importantly, it allows for better control, clarity, and coordination during lifetime and at death.

Every Situation Is Different

Some families may benefit from a life estate. Others may need a trust. And some may need a combination of strategies depending on timing, family dynamics, and the size of the estate.

What matters most is this:
These decisions should be made with full awareness of the legal and financial consequences.
Not based on online advice or what worked for a friend in another state.

How We Help

We work with families across Long Island, Queens, and New York City to protect their homes, plan for Medicaid eligibility, and ensure real estate is transferred efficiently and securely.

We’ll help you:

Understand the pros and cons of life estates vs. trusts

Avoid common pitfalls in Medicaid and real estate planning

Create a plan that balances asset protection, tax savings, and family harmony

If you’re thinking about transferring your home or using a life estate for planning, let’s talk first. We can be reached at 516-570-4016. The best protection starts with good information and a plan tailored to your goals.