A life estate conveys upon an individual or individuals for his or her lifetime, certain rights in property. Its duration is measured by the lifetime of the tenant or of another person, or by the occurrence of some specific event, such as remarriage of the tenant.
The owner of a life estate has the right of possession, the right to use the property, the right to obtain profits from the property and the right to sell his or her life estate interest. However, the contract establishing the life estate may restrain one or more rights of the individual. The individual does not have title to the property nor the right to sell the property. He or she may not usually pass it on to his heirs in the form of an inheritance.
When a life estate in property is not used as the client’s home, it is necessary to establish the value. A computer procedure is available to compute the value by input of the current market value of the property and the age of the life estate owner. For life estate computations, use IMS transaction LEC.
The value of a life estate on mortgaged property is based on equity rather than market value and the age of the individual.
After the value of the life estate is determined; in the event the member does not accept as valid the value of the life estate as established through this method, the member must secure written appraisal by two persons who are familiar with current values. If there is substantial unexplained divergence between these appraisals, the worker and the member will jointly arrange for the market value to be established by an appraisal made by a third person who is familiar with current market values and who is acceptable to both the member and the worker.
If one individual purchases a life estate in another individual’s home:
- The entire amount used to purchase a life estate in another individual’s home on or after February 8, 2006 is treated as a transfer of assets unless the purchaser resides in the home for at least one year after the date of the purchase.
- Funds used to purchase a life estate in another individual’s home for less than fair market is treated as a transfer of assets for less than fair market value regardless of whether:
- The life estate was purchased before February 8, 2006; or
- The life estate was purchased on or after February 8, 2006 and the purchaser resided in the home for one year after the date of purchase.
Life Estate FAQs
- Is there a difference when the life estate is on the client’s home property vs. other property they own?
- Yes. If the client has a life estate in the home property where client resides, it’s not considered a resource. If the life estate is on other property, it is a countable resource and the value of the life estate must be determined.
- What should I do if the client transfers the property and retains a life estate?
- You must still determine the resource value of the life estate. If the person is applying for or receiving nursing home or waivered services, the worker must determine if a transfer of assets without commensurate return took place and assign a penalty period, if applicable.
- How do I determine the resource value of a life estate?
- The LEC transaction on IMS is used for this purpose. If the client disagrees with the value showing on LEC, policy allows them to get two independent estimates of the value. Once submitted the worker accepts the value (average value), unless it is questionable, e.g. there is a large difference between the two values. Then an arrangement can be made for a third appraisal that is agreed upon by the client and worker.
- In the bottom dresser drawer my ADvantage waiver client’s son found my client’s property deed that signed on 01/01/17. The son did not realize until today that his father had transferred the property to him and only retained a life estate. How should I treat this?
- Since the client’s son did not become aware of the transfer until today, today is the date of the transfer. If the son does not want to file the deed, he would be required to destroy the deed. You would still need to look at home property. If the son wants the transfer to occur, he must file the deed for us to accept it as transferred. If it is an active case, you do not use the date the deed was signed as the transfer date. You will need to determine if the case must be closed because of the transfer of assets. If the case doesn’t have to be closed, you will need to determine the value of the life estate.
- What if the client only owns a life estate in a mineral interest?
- If a client only owns a life estate in a mineral interest, the value is reduced in accordance with 317:35-5-41.1 (b) (10) (A) and the State Medicaid Manual – Life Estate and Remainder Interest Chart.
Life Estate Examples
Example 1:
Mr. Samuel, age 78, transferred his home property to his two children and “retained a life estate” 3 years prior to entering the nursing home. The market value of the property is $200,000. What should be done concerning nursing home eligibility?
As Mr. Samuel is no longer residing in his home, the value of the Life Estate must be determined for nursing care eligibility. In using the LEC transaction in IMS, the countable resource value is ($200,000 x .47049) = $94098. $94098 is considered a countable resource. The transfer of home property must be evaluated to determine if a transfer of resource penalty would be assigned.
Example 2:
Mrs. Riley, age 88, entered the nursing home in April 2017. She indicated on the FSS-ML-1 and MA-10 that she intends to return to the home. In June 2017, Mrs. Riley and her husband transferred their home property to their daughter who resides out of state, and “retained a life estate”. The home still has a mortgage, and the total equity in the home is $140,000. What should be done concerning nursing home eligibility?
As Mrs. Riley’s name remained on the deed at the time of transfer, we must determine the value of the life estate. In using the LEC transaction in IMS, the countable resource value is ($140,000 x .30859) = $43203. $43203 is considered a resource. The transfer of resources is difference in equity of the home minus the value of the life estate $140,000 – $43,203 = $96,797 transfer of resources. The penalty period would begin June 1, 2017.
Comments or Suggestions?
We want Quest to be your source for important information that you need to succeed at in your work but we need your help:
Was this article helpful? Was it missing something you needed to get the job done?
Tell us what you think, what you know about this article. What are we doing well, and what we could do better.
All fields are required.