MAY 22, 2000 VOLUME 7, NUMBER 47
Lucille Lucareli had three sons: Les Lee, Leigh and Robert. She owned her home in Racine, Wisconsin, and not much else. In 1996 she gave her son Les Lee a durable financial power of attorney, and she also took some steps to plan for the possibility that she might have to move to a nursing home at some point.
The problem facing Ms. Lucareli is a common one. Although she could qualify for Medicaid assistance with her long-term care if she did move to the nursing home, the state would begin to accumulate a claim against her estate. After her death, the state’s claim could prevent her sons from receiving the family home, or at the least could mean that they had to pay off her nursing home costs before the home could be transferred to them.
Ms. Lucareli could qualify for Medicaid assistance while still owning the home, since federal law requires that the state not count the value of the home in determining eligibility. On the other hand, if she gave the home outright she would be ineligible for Medicaid help for up to three years.
Ms. Lucareli decided to take advantage of a popular planning technique: she transferred her home to her sons immediately, but retained the power to change her mind later and exclude one or more sons. She did this by retaining a "power of appointment" over the home, exercisable by a written instrument any time before her death. This approach, she thought, would get the home out of her estate (so Medicaid would not have any claim against it), but not affect her Medicaid eligibility. In Arizona, many practitioners use another similar technique, preparing a deed which retains both a life estate (that is, the power to reside on and use the property for the life of the original owner) and a power of appointment. A similar approach is sometimes referred to as a "Lady Bird" Deed in some states.
There were at least two problems with Ms. Lucareli’s approach. First: she didn’t actually complete the transaction herself; her son Les Lee signed the deed on her behalf using his power of attorney. Second: according to the court decision rendered this week, Wisconsin law does not recognize this type of power of appointment.
A month after the transfer of Ms. Lucareli’s home, she apparently became unhappy with her other two sons. In September, 1997, she signed a document exercising the power of appointment and removing sons Leigh and Robert from the home title, and leaving the home to Les Lee alone. Upon her death Les Lee sued his brothers, asking for a ruling that the property was his alone. The trial court disagreed, holding that the transfer was invalid and the power of appointment meaningless. The Wisconsin Court of Appeals ordered that the property be divided into three equal shares. Lucareli v. Lucareli, May 17, 2000.
The significance of the Lucareli case is broader than the family squabble between brothers. This decision casts doubt on one of the most popular and effective mechanisms for protecting the family home against future nursing home costs. It is not yet known whether the same result will be reached in Arizona or other states.