This originally aired on the Catholic Faith Network’s show CFN Live: https://youtu.be/ndDdA6xovQc How can seniors…
** This article has been revised from its original version which was published on December 6, 2017.
When discussing estate planning and Medicaid planning, the phrase “life estate” is sometimes mentioned, but what does it mean? A life estate is a form of joint ownership of a property that allows one person to remain in the home until their death. After they die, the house passes to the other owner. Elder law attorneys use life estates to help avoid probate and give a house to children while you still live in it. They may be used for any type of real property or land, and really simplify the estate planning process.
How Does a Life Estate Work?
With a life estate, two or more people each have an ownership interest in a property, but at different points in time. The life tenant (person holding the life estate) possesses the property during their lifetime. The remainderman (other owner, i.e., child) has a current ownership interest; however, they can’t take possession until the death of the life tenant.
What are the Benefits?
During the lifetime of the life tenant, they have full control of the property and have the legal responsibility to maintain the property. The life tenant also has the right to use it, rent it, and make improvements as they see fit, but they can’t sell or mortgage the property without the agreement of the remainderman. So it may be easier to refinance if necessary before developing the life estate. If the property is sold, the proceeds of the sale are divided among the life tenant and the remainderman. If sold, the life tenant may receive a lesser share of the proceeds as the shares are determined based on the life tenant’s age at the time — the older the life tenant, the smaller their share.
Upon the death of the life tenant, the house won’t go through probate as the ownership passes automatically to the remainderman. In addition, because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery.
Although the property won’t be included in the probate estate, it will be included in the taxable estate. If the size of the estate is larger than $12.06 million (for 2022), the property may be subject to estate taxation.
If you want comfort knowing exactly what will happen to your home upon your death, a life estate may be a great option. An elder law attorney can help you find out if a life estate is appropriate for your situation. Then a legal strategy is necessary to transfer property while qualifying for Medicaid benefits. If it’s not done correctly, it results in a Medicaid penalty period. Please contact our office to schedule a consultation. The attorneys at Russo Law Group, P.C. are experienced in all aspects of estate planning and Medicaid planning in New York. We can help you create a life estate to live in your home as long as possible, then transfer property outside of probate. Reach out today!