Adding a “Life Estate” to Your Estate Plan

When planning for our later years, forward thinking individuals often wonder what is the best way to spend down their assets to qualify for Medicaid but still live a comfortable and dignified life until services like nursing care are absolutely needed. With the value of real estate skyrocketing over recent decades, homes that were just a few thousands dollars may put homeowners in a financially difficult spot now that the property is worth many times the initial investment.


Under federal Medicaid laws, individuals may only have a net worth below a certain level, including things like homes and automobiles in some cases. Often times, seniors need to “spend down” their assets to qualify for the invaluable services Medicaid provides and many individuals may attempt to give away homes or spend down savings accounts to qualify. However, Medicaid has a “look back” period that can last a few months, meaning seniors may be penalized for recently giving away assets or spending bank accounts before applying for coverage.


One solution which may be effective for some is to create a “life estate” with their home. By doing so, seniors can own, live in, and exercise full control over their home and simply pass it on to a beneficiary like a child once they pass. With the help of an estate planning attorney, individuals can create the life estate with the deed to their property and create a “remainder interest” for the person who will receive the property, known as the remainderman, upon the deceased’s passing.


Even if the home is worth a few hundred thousand dollars, creating a life estate can have a significant, positive impact in reducing the assets subject to the look back period in New York state. Officials with the New York State Department of Social Services calculate the value of the transfer of the remainder based on charts created by the government so the transfer value can be much less than the home’s appraised value.


It is important to note that homes passed on in life estates are excluded from probate proceedings and pass directly to the named beneficiary, even if there is a surviving spouse. Furthermore, the full value of the home will be taken into consideration when it comes time to pay an inheritance taxes on the property. To make sure creating a life estate is the most cost effective way to reduce Medicaid lookback liability, individuals should consult with an experienced New York estate planning lawyer to understand all the pros and cons of the arrangement.

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