Posted by: BlogMaster | December 11, 2011

Life Estate Deeds and Recovery by Medicaid

Many seniors transfer their homes or other real estate to family members and retain the right to reside in, use and occupy the home or real property. This retained right is called “a life estate”. The life estate permits the senior to also retain real property tax reductions (STAR, Veterans exemption) if they live in the home – called “a homestead”. 

Under Medicaid law prior to at least September 2011, at the death of the life estate owner, no recovery was permitted to Medicaid for benefits paid on behalf of the recipient. This was because the life estate was considered to have ‘died’ along with the deceased senior. 

Now Medicaid can recover against the life estate and seek repayment from the remainder family members listed on the deed after the recipient and their spouse have both died. 

To do this, Medicaid must determine the life estate interest value based upon:

  • The home’s value as of the date of death of the Medicaid recipient
  • Age of the Medicaid recipient the day before their death; and
  • An Internal Revenue Service table which combines an interest rate for the month of death and age of the life estate owner to calculate a percentage or factor of the life estate owner compared to the whole property. 

For example, according to the IRS, an 86 year old who dies in November 2011, will own about 7% of the home at the time of their death.  If the home is worth $450,000, the maximum Medicaid may recover is about $34,000, even if the actual Medicaid benefits paid during the recipient senior’s lifetime exceed this sum.

Recovery is postponed (deferred) against a homestead in any of these scenarios:

  • There is a surviving spouse; or,
  • A sibling of the recipient with an equity (ownership) interest has lived in the home at least one year; or
  • A care giver child has lived in the home at least 2 years; or
  • While a disabled child of any age lives in the home; or
  • While a minor under the age of 21 years lives in the home.
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