Jan Neal Law Firm, LLC

Alabama Estate, Elder and Special Needs Law


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Medicaid Estate Recovery Presentation

You can access the training presentation on Medicaid Estate Recovery in Alabama given today for the Middle Alabama Area Agency on Aging’s Take a Stand for Caregivers series at this web site. You can read or download the presentation.


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Medicaid Estate Recovery Training

I will be providing training on Alabama Medicaid Estate Recovery on Tuesday, 09/20/22, at 10:00 a.m. Central time. If you feel like you could benefit from information on this topic be sure to register with the Middle Alabama Area Agency on Aging. Free CEUs are being offered for social workers, nursing home administrators, occupational therapists and physical therapists.

We will be examining how estate recovery works in Alabama, and who is at risk for losing property to repay benefits Medicaid pays on their behalf.


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Alabama Small Estate Summary Distribution Update

The Alabama Small Estates Act allows the personal property of a deceased person to be distributed to the surviving spouse or appropriate next of kin through a court proceeding in a summary manner without full probate or administration. Summary distribution makes the passing of a small estate significantly faster.   

The requirements to use this process depends on what is in the estate and its value.  No real property can be passed by summary distribution, and the personal property has to be of limited value.

Every March the permitted value to use summary distribution is published by the State Finance Director based on the Consumer Price Index. As of March 1, 2022, the value of the estate cannot exceed $32,047 (up $1439 from the 2021 limit of $30,608).

This process is frequently used for small estates where someone leaves a bank account with no joint owner or payable on death designation.  If the person had a will, it is included in the filing to control to whom the property will be distributed, and if he or she did not have a will, the property will pass by intestate succession (the state prescribed order of distribution when a deceased has no will).      


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Unintended Consequences of Failing to Probate a Will

A will has no legal effect if not filed with the court and accepted as a legitimate document meeting the testamentary requirements (which is known as probate).  Many people do not know this, and they do not know that a will must be probated within five years of death.

If the will is not filed within five years of death, then the law of intestacy determines where property passes, and it may result in very unfortunate consequences for the intended beneficiaries.

The best way to explain this is an example:

Mrs. Smith’s husband died last year, and she decided to update her will.  They owned multiple pieces of property, most of which they owned as joint tenants with right of survivorship (meaning that when the first owner dies, the other will automatically own all of the property).  But the one piece of property on which their home is located was owned by her husband without right of survivorship.  Since most people don’t sit around reading deeds after the death of a spouse, Mrs. Smith did not know this until the deeds were produced to rewrite her will.  Her husband’s will left everything to her, so if his will is probated, no problem.  But if his will is not probated within five years, she will own her home property jointly with his children by a previous marriage.  Not only will she be unable direct all of the property to pass to the children of this marriage at her death, if she wants to downsize she will not be able to sell the property without the agreement of her husband’s children by a previous marriage.  And if those children agree to sell, she will only get half of the proceeds from the sale.  This could have been a serious problem for Mrs. Smith if she had not found this need to probate her husband’s will within five years of his death. 

The best practice is to always check to see if a will needs to be probated rather than assuming it does not.  With that said, not all wills need to be probated.  For instance, there may be nothing in the probate estate to pass because all assets were jointly titled in bank accounts, and the home was owned by the spouses as joint tenants with right of survivorship.  But if there is property that does not automatically pass to others, take action sooner, rather than later, to determine what you need to do.


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Arranging to Pass Personal Property at Death

The person who makes a will is known as the testator.  Rather than requiring the testator to list all of his individual pieces of personal property in a will, some states allow the person to make a list of personal property stating to whom each item should pass.  Known as a personal property memorandum, the document is separate from the will but must be referenced in the will to be legally binding. 

Alabama does not have a provision for this type of distribution, but there is a work-around.

A will may state that the personal representative has complete authority to distribute personal property.  If the personal representative is highly trusted by the testator he or she may be given such a memorandum to follow for the distribution of personal property.  It is important to recognize that the personal representative is not legally bound by this personal property memorandum, but where the testator has a high trust level, he may feel comfortable with such an arrangement.           


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Transfer on Death Deed (TODD) Not Valid in Alabama

You may have read a widely circulated post on Facebook that would make you think you should prepare a Transfer on Death Deed (TODD) to pass your property when you die without the need for probate.  And you can download and prepare such a document at various online locations.  See https://www.templateroller.com/template/2142576/transfer-on-death-deed-form-alabama.html. The only problem is Alabama does not have a TODD statute, so any such deed would have no validity.

As of January 14, 2022, twenty-nine states, along with the District of Columbia and the U.S. Virgin Islands, have some form of TODD.  Alabama is not one of them, and neither is Georgia or Florida.  Mississippi, bordering Alabama, does have a TODD statute, and, as of January 14, 2022, a TODD statute was pending in Tennessee.

There are other ways to pass property while avoiding probate, but be aware of the fact that the TODD is not available in Alabama. 


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Selling Life Estate Property

A life estate deed can be a great tool for passing property after death.  A couple might give the property to their children and reserve a life estate for themselves until the last of the two dies.  The couple retains their homestead exemption status for life, and at death the property will automatically belong to the children without the need to probate anyone’s will.  Also the child will have a stepped up tax basis in the property which is the fair market value on the date of death of the last life tenant.  An additional benefit is the fact that Medicaid will not count the life estate as a resource if the life estate deed was executed five years prior to Medicaid application, and the property would not be subject to Medicaid Estate Recovery since it will never be probate property.  That all sounds like a win, win situation, right?

It is, except for one thing.  If the couple decides to sell the property they will need the children to sign off on the sale because the children are now joint owners with the parents.  The parents own use of the property NOW, and the children, as remaindermen, own the FUTURE use of the property.

Often a life estate deed is given with the goal of keeping property in the family, but that is not always the case.  Sometimes the life tenants want to sell the property to obtain funds for any number of purposes. With this in mind, before signing a life estate deed it is important to make sure the remaindermen would be willing to relinquish their interest and sign off on any sale of the property.    


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Legal Brief: Alabama Small Estate Summary Distribution

This is a short presentation on The Alabama Small Estate Summary Distribution available for estates that include no real property and assets not exceeding $30,245 (in 2020).


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Vehicle Transfer Without Probate

Sometimes the only property in an estate that is not jointly titled is a vehicle. To solve the problem of getting the vehicle transferred and to keep from having to open a formal estate administration, if the vehicle is paid off, the next of kin may file an Affidavit for Assignment of Title for a Vehicle from a Deceased Owner Whose Estate Does Not Require Probate(Alabama Department of Revenue MVT 5-6).   

Title can be transferred by filing the affidavit at the tag and title office of the local probate court. If the vehicle is not paid off it will likely need to be refinanced, and the lender needs to be put on notice of the death.


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Save Your Money with a Medicaid Spend Down Special Needs Trust

You don’t really have to spend down all your resources to qualify for nursing home Medicaid.  There are multiple ways to preserve funds.  One of those ways is through the use of what I call the Medicaid Spend Down Special Needs Trust.        

Usually persons who need nursing home care end up needing Medicaid to pay for that care.  Why? Because it is so expensive.  Nursing home care can cost between $6000 and $8000 depending on the specific market area in Alabama.  At $7000 per month, the average nursing home resident will spend $84,000 in a year. Under these circumstances, most persons will exhaust their resources at a rapid rate rendering them unable to pay for the care they need without the assistance of Medicaid. 

There are some funds a married couple can preserve for the spouse who remains at home, but there is still an amount that has to be spent down if a couple has countable assets over $25,000.  A single person has to spend all of his or her resources down to $2000 before he or she can qualify for Medicaid.  Using up the assets a person saved over a lifetime is known as the dreaded Medicaid “spend down.” 

But what many people do not know is that there is a way to qualify for Medicaid to pay for nursing home care in Alabama without the resident having to go through a complete “spend down.”  That is through the use of a pooled Special Needs Trust. 

There are many types of Special Needs Trusts (SNTs), including trusts for disabled younger persons, disabled children whose parents and grandparents want to provide for their future needs, persons on public benefits who recover money from personal injury lawsuits or who inherit money when a relative dies.  Each type of SNT has highly specific requirements.  But what they all have in common is the goal of protecting funds for a disabled person without those funds resulting in the loss of public benefits. 

With the Medicaid Spend Down SNT, instead of spending down the money required to be spent by Medicaid on nursing home care before eligibility can be established, the money is paid into a SNT and can then be used to pay for special needs not otherwise paid for by Medicaid for the disabled person once he or she becomes eligible.  Medicaid eligibility can be immediately established while these funds remain available to pay for special needs for the nursing home resident. 

The drawback to this type of trust is the requirement that, on the death of the person for whom the trust was established, Medicaid must be reimbursed from funds remaining in the trust up to the amount Medicaid has paid for the nursing home resident’s care.  Still, creating a pool of money to meet the special needs of the nursing home resident after being awarded Medicaid is far better than simply spending down those funds before qualifying for Medicaid and leaving the resident with no resources to pay for special needs. Since Medicaid allows a nursing home resident to keep only $30 of his or her income each month to pay for personal needs, you can see how that is not enough to have needs met without families pitching in to help pay for necessary items.     

An example of what the SNT funds can pay for is a private room in a nursing home since Medicaid will only cover a semi-private room.  Other special needs might be items and services that can improve the quality of life for the nursing home resident such as hair salon charges, manicures, telephone, newspaper subscriptions,  audiobooks, movies, recreation, medical and dental expenses not otherwise covered, special  equipment like wheelchairs or specially-equipped vans; therapy or rehabilitation services; training and education, travel, electronic equipment including computers and mobile devices.

With a little planning the quality of life for a nursing home resident can be improved, and the burden for a family’s out of pocket expenses decreased.

Do not be confused with an internet search.  The rules are different from state to state.  Most states allow a person 65 and older to create a pooled SNT but still penalize transfers into that trust.  That is not the case in Alabama.

Contact us for more information about establishing a Medicaid Spend Down SNT.