Implications of a Life Estate -- A Medicaid Planning Option

Category: Elder Law

From Newsday.com, an excellent outline, not in legalese, of a possible Medicaid Planning technique under the current law where a parent is moving into a child's home.

Implications of a life estate:

"The problem: My 80-year-old mother's health is declining, and she's moving into our home. After selling her house, she'll have about $300,000. Can she purchase a life estate in our home in order to preserve her money if she someday has to enter a nursing home?

The expert: Robert J. Kurre, certified elder law attorney, Robert J. Kurre & Associates, P.C., Great Neck.

The rules: Under the Deficit Reduction Act of 2005, a person who purchases a life estate interest in another's home for fair market value - and then lives there for at least a year - does not face an ineligibility period for Medicaid nursing home benefits. There is pending litigation challenging the constitutionality of the overall federal act, and it has not been implemented in New York. However, it's likely that the law will eventually be enacted, retroactive to Feb. 8, 2006.

The strategy: If she's expected to live in your home for at least a year, your mother could purchase a life estate interest in your home, which gives individuals not considered owners of a property certain rights to that property, including the right to live there. Consult with a qualified elder law attorney to determine whether this is the best strategy for her. The attorney also can help you determine the amount for which the life estate should be purchased, based on your mother's age and your equity interest in the home.

How it works: A life estate has no value for purposes of determining an individual's eligibility for Medicaid. The holder of the life estate (the 'life tenant') has the legal right to live on the property for life without paying rent. Upon the life tenant's death, the life estate is extinguished.

The results: Your mother's purchase of a life estate in your home could protect the proceeds from the sale of her house. But if she purchases the life estate, and you decide to sell your home during her lifetime, your mother would have to sign the new deed and a portion of the sale proceeds would be payable to her as the life tenant. Those proceeds would count as her resources for Medicaid purposes and, depending on the situation, could cause her to incur adverse tax consequences."