2322 Life Estate and Remainder Interests | Medicaid

Under a life estate, an individual who owns property transfers ownership of that property to another individual while retaining, for the rest of his or her life (or the life of another person), certain rights to that property.

The owner of a life estate can sell the life estate but does not have full title to the property. The life estate owner cannot sell the property or pass it on as an inheritance.

However, some states allow life estates with powers, wherein the owner of the property creates a life estate for himself or herself retaining the power to sell the property, with a remainder interest to someone else, such as a child.

If an A/R owns a life estate with powers, its resource value is its full equity value.

If an A/R owns a life estate with no powers, use the table on the following page to determine the resource value.

When the owner of the property gives it to one party in the form of a life estate and designates a second party to inherit it upon the death of the life estate holder, the second party has a remainder interest in the property.

If an A/R purchases a life estate interest in another individual’s home the purchase price will be considered a transfer of resource, unless the purchaser resides in the home for at least one year (12 months) from the date of purchase (12 months must be consecutive).

When making the determination of whether the 12-month residency requirement was met look at factors like was the person’s mail delivered there, did they pay property taxes etc. Brief rehabilitation stays or vacations do not necessarily negate the residency, but this is a factual inquiry that must be conducted on the particular case. If the A/R who purchased the life estate moves out prior to the end of the12 month period, a transfer of assets penalty must be imposed. The uncompensated value is the full amount paid for the life estate as if the individual never moved into the home.

If purchase price was not for fair market value, then a transfer penalty must be applied. If the purchaser’s life expectancy is less than the value of the life estate or they make a gift of the life estate impose a transfer penalty.

The value of a remainder interest in non-homeplace property is a countable resource for all A/Rs.

If an A/R transfers ownership of real property and retains life interest, he/she has transferred remainder interest. Consider a transfer of resources penalty on the value of the remainder interest.

If an A/R transfers life estate interest, consider a transfer of assets penalty on the value of the life estate interest. See 2342 Transfer of Assets.