Life Estate Deeds vs Trusts KS | Advanced Legal Planning

For most Kansas families, the home is the single largest asset they own, and it is also the asset they most want to protect for the next generation. When people come into the office asking how to keep the family home safe, they have usually already heard about one or two simple strategies from a friend, a neighbor, or a conversation at the coffee shop. Those strategies can be useful. But they are only the first step in a much larger range of planning options, and understanding the full progression is what helps families choose the approach that actually fits their goals.

This article walks through those options in order, from the simplest deed based tools to the more comprehensive protection available through a properly drafted irrevocable trust.

Common Deed Based Planning Strategies

Most people who come into the office have already heard about one of two relatively simple ways to transfer a home outside of probate. Both deal with a single piece of real estate, and both have real uses and real limitations.

The first is a Transfer on Death Deed. A Transfer on Death Deed generally allows the owner to retain full ownership and control of the property during life while designating who will receive it at death. Nothing passes to the beneficiary until the owner dies. Until then, the owner can sell the property, refinance it, or change the beneficiary. It is a straightforward way to keep a home out of probate and direct where it goes, but it is primarily a tool for handling the transfer of one piece of real estate at death. It does not manage the property if the owner becomes incapacitated, and it does nothing to protect the home from long term care costs during the owner's life.

The second is a life estate arrangement, sometimes set up through a life estate or remainder deed. A life estate arrangement is materially different from a Transfer on Death Deed. The owner actually gives away the remainder interest, during life, while retaining the right to possess and use the property for the remainder of the owner's lifetime. In other words, the children or other remaindermen become future owners the moment the deed is signed, not at death.

That difference matters for control, taxes, Medicaid planning, future sales of the property, and the owner's ability to change plans later. Once a life estate deed is signed, the owner generally cannot sell or refinance the home without the agreement of everyone named as a remainderman. If one of those remaindermen later gets divorced, sued, or files for bankruptcy, their interest in the property can become entangled in that dispute, even while the original owner is still living there. A Transfer on Death Deed avoids that particular problem because no interest passes until death, but it also offers none of the lifetime planning that other tools provide.

Why a Revocable Living Trust May Be Better

For many families, the next question is why they might choose a Revocable Living Trust instead of relying only on a deed.

A Revocable Living Trust can do much more than determine who receives one piece of real estate at death. Depending on the estate plan, a Revocable Living Trust can coordinate the disposition of multiple assets, provide for management of assets during incapacity, avoid probate for assets properly titled in the trust, establish detailed instructions for beneficiaries, address blended family concerns, provide continuing trusts for children or other beneficiaries rather than requiring an outright distribution, and make it easier for a successor Trustee to manage property when the original owner can no longer do so.

For many families, that additional flexibility and ability to cover multiple contingencies makes a Revocable Living Trust a significantly better estate planning tool than simply recording a Transfer on Death Deed.

There is, however, an important limitation. A Revocable Living Trust generally does not provide asset protection for the Grantor, whom we generally refer to as the Trustmaker, who created it. That is not simply a planning opinion, it is built into Kansas law. K.S.A. 58a-505 provides that, during the lifetime of the person who creates a revocable trust, the property in that trust remains subject to that person's creditors. Kansas statutes use the term settlor for the person creating the trust. In our documents, we generally refer to that person as the Trustmaker.

The principle is straightforward. If the Trustmaker retains the right to revoke the trust and take the assets back, those assets generally remain available to the Trustmaker's creditors. So although a Revocable Living Trust may be an excellent tool for probate avoidance, incapacity planning, management of assets, and controlling how property ultimately passes to beneficiaries, it should not be confused with an asset protection trust.

That leads naturally to the next level of planning.

When Asset Protection Becomes Part of the Goal

Some people are concerned with more than avoiding probate or making it easier for someone to manage their property if they become incapacitated. They are also asking a different kind of question. What happens to these assets if something goes wrong years from now?

Maybe the concern is a future need for long term care. Maybe it is an unexpected lawsuit. Maybe it is some other creditor or liability that does not even exist today. When protection from future risks is part of the planning goal, an appropriately structured irrevocable Medicaid Asset Protection Trust (MAPT) may offer benefits that a Revocable Living Trust cannot.

For many of our clients, the risk that brings this issue into focus is the possibility of needing nursing home or other long term care and eventually applying for Medicaid. That is why we generally draft an asset protection trust as a Medicaid Asset Protection Trust. But Medicaid is not the only reason for creating the trust. Medicaid is better understood as one potential future creditor or claimant that the planning is designed to address. The broader goal is to separate certain assets from the Trustmaker's unrestricted ownership and control, so that those assets can receive protections that would not be available if the Trustmaker continued to own them outright or through a Revocable Living Trust.

The important distinction is that this is an irrevocable trust. The Trustmaker cannot simply treat the property as though nothing changed, revoke the trust whenever desired, and take everything back. It is that surrender of certain ownership rights and control, when properly structured, that creates the possibility of asset protection.

Asset Protection Is Broader Than Medicaid Planning

The phrase Medicaid Asset Protection Trust describes one of the most common reasons people seek this kind of planning, but it does not necessarily describe the full purpose of the trust.

A properly designed irrevocable asset protection trust may provide protection from certain future creditor claims in addition to helping with long term care Medicaid planning. For example, depending on the circumstances, protected trust assets may be treated differently from assets still owned personally by the Trustmaker if a future lawsuit or another creditor problem arises.

We should not say that property placed in the trust is automatically immune from every possible claim. Creditor protection depends on how the trust was drafted, what rights the Trustmaker retained, when the property was transferred, the nature of the creditor's claim, and other applicable laws. There are also laws designed to prevent someone from transferring property away after a creditor problem has already arisen, simply for the purpose of putting the property beyond that creditor's reach. That is another reason this type of planning works best before there is a crisis.

The broader message is simple. Asset protection planning is something we do while the horizon is clear, not after we can already see the storm coming.

Why the Medicaid Five Year Look Back Matters

The Medicaid discussion is where advance planning becomes especially important. When assets are properly transferred into a Medicaid Asset Protection Trust, the transfer may begin the applicable Medicaid look back period, which in Kansas can reach back up to five years.

Once the transfer is sufficiently old and the applicable Medicaid transfer rules have been satisfied, the gift of protected trust assets may no longer be penalized the same way as assets the Medicaid applicant continues to own personally. That is very different from a Revocable Living Trust. Property in a Revocable Living Trust continues to be available to the Trustmaker, and K.S.A. 58a-505 reinforces that distinction on the creditor side by specifically providing that the assets of a revocable trust remain subject to the claims of the Trustmaker's creditors during the Trustmaker's lifetime.

The Medicaid Asset Protection Trust is designed differently precisely because asset protection requires giving up rights that a Trustmaker intentionally retains in a Revocable Living Trust. The recurring planning message applies here as much as anywhere. Do not wait until someone is entering a nursing facility to begin thinking about asset protection.

Where Life Estate Deeds and Medicaid Fit In

Because a life estate is an ownership interest, it must be considered in the Medicaid resource analysis. But it is important not to overstate what that means. A life estate is a resource, but that does not necessarily make it a countable resource for Medicaid eligibility purposes.

Whether a retained life estate is actually counted depends on the character and use of the property. If the life estate is in property that qualifies as the Medicaid applicant's exempt home, the retained life estate can remain exempt. Likewise, qualifying income producing property may be exempt under the applicable Kansas Medicaid provisions. The point is that a retained life estate does not automatically cause Medicaid ineligibility, and any analysis of a life estate has to look at what the property actually is and how it is used.

It is also worth remembering that exempt is not the same as protected. Even when the home is exempt during the applicant's lifetime, it may still face a Medicaid estate recovery claim after death if it is still part of the estate. That is one more reason families thinking about the long term future of the home look beyond a simple deed.

Choosing the Right Level of Planning

The right approach is not about one technique being universally better than another. It is about matching the tool to what the family actually wants to accomplish.

A Transfer on Death Deed may solve a transfer at death problem, keeping one piece of real estate out of probate and directing where it goes. A life estate or remainder deed may solve a particular ownership problem, transferring the remainder interest now while retaining lifetime use. A Revocable Living Trust can solve much broader estate planning problems, coordinating multiple assets, planning for incapacity, and controlling how property passes to beneficiaries, though it does not protect those assets from the Trustmaker's own creditors. And when protecting assets from potential future long term care costs or other creditor risks is also part of the goal, an appropriately structured irrevocable Medicaid Asset Protection Trust can offer another level of planning that the simpler approaches do not provide.

That progression leads to the real question, the one that matters more than any single document. What do I want this planning to accomplish, not just when I die, but during the rest of my life?

Protecting the family home is rarely a one size fits all decision. Whether a deed, a revocable trust, an irrevocable asset protection trust, or a combination of strategies fits your family depends on your goals, your timeline, and who you are protecting the home for. Learn more about how we structure these plans on our Trusts page, or read about our broader approach to Asset Protection Planning.

Ready to protect your home, savings, and family's future? Call Advanced Legal Planning at (316) 252-2233 or schedule a consultation online. Virtual meetings available.