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Isaac Yedid, Esq. & Raymond Zeitoune, Esq.

Those of you who are thinking about applying for Medicaid should first be sure to discuss essential Medicaid planning tools with your attorney in order to avoid Medicaid liens and mandatory estate recovery. This is true whether they need Medicaid home care and wish to avoid mandatory estate recovery, or whether they are planning for nursing home care and wish to avoid liens and/or mandatory estate recovery. As discussed in previous articles, one strategy entails transferring the home into an irrevocable Medicaid trust. Another simpler tool (but not always the best) used to protect the home involves transferring the home to a loved one (as opposed to an irrevocable Medicaid trust) while retaining a “life estate” in the home. This article will discuss the benefits and drawbacks of a deed with retained life estate for the elder law client.

Benefits of Deeding Your Home to a Loved One While Retaining a Life Estate:

• A legal life estate allows the life estate holder the absolute and exclusive right to live in the property for the rest of their lives. Therefore, the elder client can live in their home without worrying about the remainder owners (usually the children) kicking them out. This can also be accomplished with a Medicaid trust.
• The life estate holder has the right to all the rents from the property if it is rented out during his/her life, similar to a Medicaid trust.
• The property avoids probate after the death of the client since it passes by operation of law, similar to a Medicaid trust.
• The life tenant retains their real property tax breaks including STAR, Enhanced STAR, SCRIE, SCHE, etc. which can also be accomplished with a Medicaid trust.
• Under current Medicaid mandatory estate recovery laws, the home will not be available to Medicaid under an estate recovery action since the home avoids probate (see above).
• The property receives a step-up in tax basis upon the death of the owner which saves the remainder beneficiaries capital gains tax if the property appreciated after it was purchased. This result is the same under a properly drafted Medicaid trust.
• The transfer of the property with a retained life estate triggers Medicaid’s 5 year look-back period for nursing home care which means the earlier you transfer the home, the sooner you would be eligible for Medicaid nursing home care coverage. The same applies to transfer to a trust.
• Deeding the home to a loved one with a retained life estate is generally cheaper and simpler than deeding the home to an irrevocable Medicaid trust with a retained life estate.

Given all the above mentioned advantages in deeding the home to a loved one while retaining a left estate (as opposed to deeding the home to an irrevocable Medicaid trust while retaining a life estate), one may wonder why attorneys still recommend the use of irrevocable Medicaid trusts.

The below mentioned disadvantages will highlight a few of the reasons attorneys still advise elderly clients to deed their home to a irrevocable Medicaid trust while retaining a life estate (as opposed to deeding the home to a loved one while retaining a left estate).
Disadvantages of Deeding Your Home to a Loved While Retaining a Life Estate:

• When you transfer property with a retained life estate to someone else, you cannot sell the property without the remainder owners’ consent.
• You also lose the right to change who the eventual owners will be; once the transfer occurs, you can’t take it back without consent. This contrasts with a trust which allows you to retain a limited power of appointment and change who the eventual beneficiaries will be at any time.
• The property will become an asset of the remainder beneficiaries immediately upon the transfer and will also be available to the creditors and may prevent them from obtaining means tested governmental benefits such as Medicaid and SSI.
• The sale of the home while you are in a nursing home will result in the life estate portion of that transfer (calculated using IRS tables) becoming an available resource.
• If the home is sold, you would not qualify for the full $250,000 exclusion of capital gain tax ($500,000 if you are married filing jointly). Rather, you would be entitled to a partial qualification relative to the value of the life estate.

Conclusion

As mentioned in previous article, with careful Medicaid planning, you may be able to preserve some or all of your estate assets for your children or other heirs while meeting the Medicaid asset limits.

Speaking with an experienced trusts and estates/elder attorney will be useful to you because the attorney will advise you on the options available to you which will allow you to use Medicaid to cover the cost of medical care without depleting your assets.

May we all merit living long, healthy and happy lives – amen.

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The attorneys in the Trusts & Estates Practice Group at Yedid & Zeitoune have a combined 20 years of legal experience and are ready to assist you with all your estate planning needs.

Isaac Yedid, Esq. & Raymond Zeitoune, Esq.

Yedid & Zeitoune, PLLC

1172 Coney Island Avenue Brooklyn, New York 11230

Phone: (347) 461-9800 Fax: (718) 421-1695 Email: [email protected]

NYC Office – By Appointment Only:

152 Madison Avenue, Suite 1105 New York, New York 10016

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