A “life estate” in property is an interest that has a quantifiable value. If ownership of property can be thought of as giving the owner a “bundle of rights,” the life estate is a partial ownership of that bundle. For instance, the owner of property has the right to sell it, improve it, demolish it, rent it, give away a partial interest, and reside in it. The life tenant has the right to reside in the property and exclude other residents, and the right to receive the rent if s/he moves out. At sale, the owner of the life estate is entitled to a percentage of the proceeds based on their age at date of sale.
A new non-precedential appellate division case called E.S. vs. DMAHS has confirmed this legal principle. E.S. transferred her property to her daughter in 2006 and reserved a life estate. Eventually, she moved into a nursing home. In 2013, Elaine and her daughter sold the property, but 100% of the proceeds were given to the daughter. When Elaine applied for Medicaid in 2014, this transfer of assets was captured by the 5-year look-back which is done at the time a Medicaid application is filed. As a result, a transfer penalty was imposed on Elaine, because $144,720 was the value of the life estate which was given away to the daughter. As a result, Medicaid would not pay the nursing home for approximately 14 months, creating obvious problems for Elaine. Elaine did try to provide evidence to rebut the presumption that the gift wasn’t exclusively for the purposes of hastening Medicaid eligibility, but that’s a different topic for another day.
The Medicaid transfer penalty rules are a minefield. When managing the assets for aging individuals and doing asset protection planning, you need to keep in mind the potential impact on Medicaid eligibility of any financial transaction you are thinking about, because the denial of Medicaid benefits could be catastrophic.
Call us for advice on Medicaid eligibility planning, trusts for family members, Medicaid applications and appeals … 732-382-6070