To protect the value of their home from being used to pay nursing home bills or subject to a claim by Medicaid, many people, often parents, have transferred title to their home to another person, often one or more children. The transfer often includes the grantors retaining a “life estate,” the right to stay in their home for the rest of their lives. Common benefits of retaining a life estate include: the homeowners remain eligible for basic STAR and other enhanced STAR school tax exemptions; the life estate is unaffected by a judgment against or bankruptcy filing by the child; and as owners of the life estate, the grantors cannot be evicted from the home.
The law in New York is that five (5) years after a parent’s transfer of home ownership to a child – even where a parent retained a “life estate” – Medicaid cannot recover any part of the home’s value in reimbursement for paid benefit.
This appears likely to change. New York State has proposed regulations to enable it to recover the value of a retained life interest from a Medicaid benefit recipient. This is true even if the life use was created more than five (5) years ago.
The value assigned to the retained life estate is expected to based on tables that state a percentage of the home’s fair market value (“FMV”). For example, New York State has used the example of a person aged 76 dying in October 2011 with a retained life estate in a home with a $270,000 FMV. The life estate is determined to be worth $57,323.70 (life estate factor for a 76 year old is .21231 multiplied by the $270,000 FMV). Medicaid would have a claim against the estate of the 76 year old decedent for $57,323.70.
Homeowners who have already transferred ownership and retained a life estate may wish to consider extinguishing the life estate, selling the life estate to whom they transferred the interest, or transferring the life interest to an irrevocable trust. Each of these changes has possible negative consequences such as loss of the basic and enhanced STAR Exemptions, tax consequences (gift and possible loss of step-up in tax basis), and starting a new five-year Medicaid look-back period. The age and physical and financial health of the client are considerations, as is the availability and attractiveness of long term care insurance through the New York State Public/Private Partnership for Long Term Care.
The lawyers at Bansbach Zoghlin P.C. can help you decide what to do if you have a retained life interest and about other estate planning topics. If we can help, please let us know.
BANSBACH ZOGHLIN P.C.
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John M. Bansbach, Esq. email@example.com
Mindy L. Zoghlin, Esq. firstname.lastname@example.org
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The information contained in this article is not legal advice. Bansbach Zoghlin P.C. provides legal advice to clients who retain it to provide services.