Life Estate in Wisconsin - how bad can it get?

[csoyo]

What is the name of your state (only U.S. law)? WI

Father married step mother at 70 and now dying. In will he is expecting to leave her the house as a "Life Estate" with myself as Remainder.

She still has significant debt from when she entered the marriage and has a daughter with a student loan she cosigned for who is not paying it (presumably a lien situation).

Q: In Wisconsin, can *any* of her debts/liens, in end up transferring to me or the estate? In most states it seems no from searching here but really need specific to WI.

If she doesn't make necessary payments on property (tax/insurance) am I left holding the bag on that too short of suing to remove her from the LE (which sounds very difficult to accomplish in WI)? If I don't have the $$ to pay OR sue, what happens to the property? At least in a trust I could rent it out to recover - but with the Life Estate apparently all property profits would go to primary deed holder.

In WI there is a new law that appears to allow the state to recover Medicaid easier - can that get hung on me too or reduce the estate to nothing?

I am being asked if I am ok with this and I am afraid this will all come back to haunt me. I will of course consult an attorney if need be but hoping someone here might be familiar with Wisconsin and willing to share any thoughts. Thanks

 

[curb1]

Is Dad well aware of the problems he will be leaving with this situation? Is that what he wants? He most likely does not understand the situation well.

 

[csoyo]

Is Dad well aware of the problems he will be leaving with this situation? Is that what he wants? He most likely does not understand the situation well.

Thanks very much for the reply - he was not aware at the time of our discussion, and for the moment he is more of the opinion that I am being paranoid - so my questions are for the education of both of us, and being able to show him a post that validates my concerns would be a great help, if in fact my concerns are valid.

This also illustrates the need to have a proper attorney involved... he is trying to move quickly and in sort of a DIY manner, which definitely doesn't help the situation. I'm really hoping someone here can either validate or discredit my concerns as they relate to Wisconsin so I can at least get him on board and steer this in the right direction...

 

[justalayman]

he should involve an attorney, if for nothing else, to ensure the life estate is written properly including any requirements or liabilities the tenant may be liable for.



as far as your possible liabilities of hers:

You would not become liable for her debts unless you agreed to do so. Since her interest is only a possessory interest and not one of ownership, there is nothing for the state to take upon her death. Due to that, there would be no property to attach a lien to.




That doesn't mean there isn't some holder of a debt incurred prior to your father's passing that may have a position to grab the house whether it be hers or his debt.

If she doesn't make necessary payments on property (tax/insurance) am I left holding the bag on that too short of suing to remove her from the LE (which sounds very difficult to accomplish in WI)?

it becomes your if you want to retain ownership of the property. Yes, if she fails to pay what she is required, barring her leaving willingly, you would have to sue to terminate the tenancy and evict her.

as to the insurance; you should insure your interest in the property. Generally she would be liable only for her acts of negligence that caused damage. What that means, as an example, is the if the house was hit by lightning and burned, she isn't liable for anything. That would be on you.

If I don't have the $$ to pay OR sue, what happens to the property?

that would depend on to whom the money is owed. If taxes, if you fail to take appropriate action and remedy the deficiancy, you could lose the property at a tax sale.

At least in a trust I could rent it out to recover - but with the Life Estate apparently all property profits would go to primary deed holder.

ya, that is how it works.


so, if this life estate is not created, where would you suggest your step mother live after your father's death?

 

[csoyo]

Very grateful for your response ;-) !!!

That doesn't mean there isn't some holder of a debt incurred prior to your father's passing that may have a position to grab the house whether it be hers or his debt.

To be clear, do you mean this collection could occur before or after his passing? If you mean after, then it would sound like the student loan and unpaid cc bills could have an effect on the property? If you could clarify this point for me I would appreciate it.

as to the insurance; you should insure your interest in the property. Generally she would be liable only for her acts of negligence that caused damage. What that means, as an example, is the if the house was hit by lightning and burned, she isn't liable for anything. That would be on you.

So to clarify, she is not under obligation to maintain insurance in this case - but could it be written in the terms?

so, if this life estate is not created, where would you suggest your step mother live after your father's death?

To be honest, I would rather the property be sold and proceeds split. The home is $740k, and paid for. She could easily buy a smaller, lower tax/maintenance property in the $250k area with funds left over + no yard/driveway maintenance and there would be no need for an ongoing ordeal. Just IMO however, as it is what my father wants for her that is most important.

I hope you don't mind but I really need to throw one last topic on this as it seems paramount now and I can't believe I missed it:

The Medicaid issue I mentioned in my first question, it sounds like you are saying that if SHE went on Medicaid at any point, the State should not be able to take money from the property? I had thought some of that changed with Scott Walkers revised policies but then there was an amendment in Nov 2013 and it becomes confusing.

After reading your answer though, I realized that the issue of Medicaid and the '5 year lookback' may an issue for my father, not step mother (?)

If my father does the Life Estate now, it seems there would be at least the 5 year lookback for him - does that seem more correct? Which means if he is dying now and does this Life Estate, and faces a Medicaid situation within the next year or two (very likely), this could have a major impact on the value of the property/estate?

Thanks again for such a great response (!) and hope you don't mind my followups...

CS

 

[LdiJ]

Very grateful for your response ;-) !!!



To be clear, do you mean this collection could occur before or after his passing? If you mean after, then it would sound like the student loan and unpaid cc bills could have an effect on the property? If you could clarify this point for me I would appreciate it.

Her premarital debts would have no effect on the property. Any debts that she and your father jointly incurred during their marriage could if there were not other assets to cover those debts.

So to clarify, she is not under obligation to maintain insurance in this case - but could it be written in the terms?

No, she would have an obligation to prove insurance, but it would be in your best interest to also provide insurance.

To be honest, I would rather the property be sold and proceeds split. The home is $740k, and paid for. She could easily buy a smaller, lower tax/maintenance property in the $250k area with funds left over + no yard/driveway maintenance and there would be no need for an ongoing ordeal. Just IMO however, as it is what my father wants for her that is most important.

Then tell your dad that...in a very kind and gentle manner. Tell him that you think that it would be in your stepmother's best interest to be in a smaller place where she would not have to deal with yard/driveway maintenance.

I hope you don't mind but I really need to throw one last topic on this as it seems paramount now and I can't believe I missed it:

The Medicaid issue I mentioned in my first question, it sounds like you are saying that if SHE went on Medicaid at any point, the State should not be able to take money from the property? I had thought some of that changed with Scott Walkers revised policies but then there was an amendment in Nov 2013 and it becomes confusing.

After reading your answer though, I realized that the issue of Medicaid and the '5 year lookback' may an issue for my father, not step mother (?)

If my father does the Life Estate now, it seems there would be at least the 5 year lookback for him - does that seem more correct? Which means if he is dying now and does this Life Estate, and faces a Medicaid situation within the next year or two (very likely), this could have a major impact on the value of the property/estate?

Thanks again for such a great response (!) and hope you don't mind my followups...

CS

You are getting a little confused on the Medicaid issue.

If your father were to deed the house to you now, with a life estate for he and your stepmother, then if he needed nursing home care within 5 years after doing so, he would be denied Medicaid. He would have to find some other way to pay for the care. If its merely a will that gives the house to you after he passes, with a life estate for your stepmother, then yes, the state could go after the house to cover his care if he has no other assets available. The government doesn't want to pay for someone's nursing home care if that person has an asset valued at 740k that could cover that care.

However, if your father dies without ever needing nursing home care (or nursing home care that cannot be paid for in another manner) then since the house won't actually belong to your stepmother, the state cannot ever go after the home if she ends up needing nursing home care.

Bottom line...you are not responsible for your stepmother's debts. Your father and your father's estate are not responsible for your stepmother's premarital debts. The state cannot go after assets that someone does not specifically own, to cover nursing home care.

Your father should consult an attorney that specializes in estate planning. I do think that you are a bit paranoid. Yes, things can go wrong with life estates but they are not "destined" to go wrong. Perhaps you should also get a consult with an attorney as well.

 

[justalayman]

As far as the step mothers debts; depending on what they are and when they were incurred, they could be the liability of the father though and again, depending on what and when, the house could be the target of attempting to seek payment for the debts. Even though it appears to be seperate property and what appears to be her seperate debt can be construed as the fathers debt due to the doctrine of necessaries.

 

[LdiJ]

As far as the step mothers debts; depending on what they are and when they were incurred, they could be the liability of the father though and again, depending on what and when, the house could be the target of attempting to seek payment for the debts. Even though it appears to be seperate property and what appears to be her seperate debt can be construed as the fathers debt due to the doctrine of necessaries.

I didn't mention that because student loans and credit cards don't fall in that category.

 

[justalayman]

I didn't mention that because student loans and credit cards don't fall in that category.

agreed. I was going more to unknown issues than what has been specifically mentioned.

 

[commentator]

If your father is terminally ill now, the chances that he will need long term nursing home care are not great. Most people do not get into the "years and years" of long term health care that those people who sold long term care policies used to scare us with. To put it bluntly, they tank more quickly, once they start down.

If deemed medically necessary, Medicare will cover some weeks of skilled nursing care. I wouldn't waste too much time worrying about whether Medicaid will get the house, or ways that it could be prevented from getting the house at this point. After all, if your father needed this type of care, he'd want to pay for it as long as he was able, I'm sure.