Residence Transfer Subject to Life Estate: Medicaid Planning
With this Medicaid planning tool, you transfer the "remainder interest" in your house to your children (or other beneficiaries) and retain a "life estate" for yourself. A life estate gives you the legal right to live in the house for life. At your death, the home automatically passes to the remainder beneficiaries outright.
A transfer subject to a life estate can help you qualify for Medicaid by removing the remainder interest as a countable asset for Medicaid eligibility purposes at the end of any ineligibility period. Further, any period of ineligibility will be shorter than if you had transferred the home entirely.
- Preserves your right to live in the property for life
- Avoids probate
- Preserves assets for your loved ones (in some states)
- Helps you qualify for Medicaid
- Minimizes gift tax on the transfer (depending on the value of the remainder interest and the amount of your unused applicable exclusion amount)
- Provides the remainder beneficiaries with a stepped-up basis
- Loss of control over asset
- Value of life estate may be subject to Medicaid estate recovery in some states
- Sale of the home during your lifetime may be problematic
Variations from State to State
- Value of life estate may be subject to Medicaid estate recovery in some states--check the laws of your state
How Is It Implemented?
- Gather information about your income, assets, and transfers of same for the past five years
- Consult a Medicaid law attorney
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