Full question:
I am trying to preserve my real property from Medicaid's estate recovery act taking my only asset. I wanted to know if an irrevocable life estate interest for me to continue living in my home until death, then the remainder beneficiary to my adult disabled daughter could work. And, if this deed could accomplish the goal, what are the tax consequences of such. Also, is it possibile for a revocable life estate interest in a deed? If so, what are the consequential tax differences?
- Category: Real Property
- Subcategory: Deeds
- Date:
- State: California
Answer:
To qualify for Medicaid nursing home assistance, there is a 60-month look-back period. This period assesses any asset transfers made for less than fair market value, including transfers to trusts or other arrangements intended to qualify for Medicaid. Under the Deficit Reduction Act of 2005, this look-back period is five years for transfers made on or after February 8, 2006. For every $4,300 transferred, you may face a one-month disqualification from Medicaid coverage.
Transfers to certain individuals do not affect Medicaid eligibility, including transfers to a spouse, a child under twenty-one, a disabled child, a sibling with an equity interest living in the home for at least one year, or a caretaker child who has resided there for at least two years and provided care.
If your equity interest in the home is $500,000 or less (or $750,000 in some cases) and you intend to return home, it may not be considered a resource for Medicaid eligibility. The equity value is determined by subtracting any liens or mortgages from the home's fair market value.
Creating a life estate without the power to sell may be seen as a disposal of resources, potentially disqualifying you from Medicaid. However, if the life estate deed was established long enough ago that it falls outside the look-back period, the house may be a countable resource, but your life estate could have a market value of $0, which would not disqualify you.
On the other hand, if you create a life estate deed with the power to sell, it is not considered a disposal since you retain the ability to sell the property. However, in this case, the house would count as an available resource unless exempt for other reasons, like having a spouse or dependent relative living there.
An Enhanced Life Estate Deed allows you to retain a life estate while granting your children the remainder interest. This means you can sell the property without notifying your beneficiaries, and if you do not sell it, it passes directly to them after your death without going through probate. This deed type is accepted in several states, including Florida, Texas, and California, and offers benefits like bypassing probate and avoiding capital gains tax for beneficiaries.
In summary, establishing a life estate can have significant implications for Medicaid eligibility and tax consequences, so it’s essential to consider these factors carefully.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.