You are asking a complex question which requires a detailed review of your mother-in-law's assets and circumstances. It sounds as if she has already sat down and met with an estate planning attorney, which is what I would have recommended. If she wishes, she could get a second opinion from another attorney, but that would be up to your mother-in-law.
There are several concepts being confused here. There is no such thing as a "Ladybird Trust." What she is referring to is a Ladybird Deed. While the Ladybird may help to protect the house from Medicaid Estate Recovery, there are some drawbacks.
The gifting that your mother-in-law wants to do, is NOT recommended unless strictly supervised by an experienced Medicaid Attorney. If your mother-in-law is working with an attorney on this, make sure that the attorney is someone who frequently files successful Medicaid applications. This is a highly technical area of the law. The house and other assets can be protected from nursing home spend-down, but you need good advice from an experienced Elder Law or Medicaid attorney.
I concur with attorney Mannor.
The answer given does not imply that an attorney-client relationship has been established and your best course of action is to have legal representation in this matter.
It looks like the lady bird deed, if it was done correctly, will take care of disposing of the home. If the lady bird deed does not state the home will be left for the boys, then it may not be left for the boys and must go through probate. In 2012, the homestead exclusion for Medicaid was $525,000.
As for the will, it should address all other property such as checking/savings accounts, cash, and personal items left behind. If planned properly, with a knowledgeable attorney, the boys will be able to get the home and she should not get penalized for Medicaid eligibility.
As far as foreseeable problems with a trust selling the home after death, your mother-in-law would need to consult an attorney and have the attorney thoroughly review the details of your mother-in-law's situation and the trust document.
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