The Nebraska legislature recently made a significant change to the law that will affect how a person can plan for long-term medical expenses. The change will make it more complicated and costly to preserve your assets for your heirs if you have significant medical needs toward the end of your life. The law does not go into effect until August, so there is still time to act, but the window is closing rapidly.

For those without insurance, going on Medicaid to pay for long-term health care is usually preferable to spending one’s own funds. Yet Medicaid presents two problems: 1) qualifying (having very few “available” resources”) in the first place and 2) the government recovering what it spent on you from your estate after you pass away.  Until now, utilizing a lesser known concept called a life estate has been the easiest way to protect what is usually a person’s most significant asset from a Medicaid lien: your home.

Until now, the law permitted the government to recover Medicaid money only from a person’s probate estate, or the assets the person owned at their passing.  A life estate has been a valuable tool because it removed the home from a person’s probate estate. It requires careful planning and consideration of many factors, not the least of which include labyrinthine state and federal regulations. It is strongly advised to work with an attorney to ensure full compliance.

Understandably, like anyone else, the government prefers to be paid for what it spends on a person’s health care. The argument goes that a person should not be able to plead neediness to the government while passing down substantial assets to the next generation. The legislature recently altered the law to include a life estate in a person’s probate estate, making it recoverable when the owner dies.

This law does not become effective until August, and any life estate transfers prior to then will still be off limits from government recovery. The alternative going forward is an irrevocable trust, which is much more costly and must make the assets unavailable to the owner even during his or her lifetime, so it is much less desirable an option.