Review of Partial Interest in Real Estate

In Post 86, I discussed the advantages and disadvantages of a potential Medicaid applicant transferring property and retaining a life estate. The advantages are that the retained life interest is assigned no resource value nor is it subject to the lien. On the negative side, as pointed out in said Post, New Jersey Practice, Celantano, ¶4.8 indicates that the individual with retained life interest has certain obligations. If an individual is in a nursing home, the social security and/or pension cannot be applied to pay these costs and the burden falls on the remainderman.

In addition, the remainder interest is deemed to be a transfer and could cause a delay of Medicaid. The computations for the value of a life estate and the remainder interest are set forth in a prior Revenue Procedure, which bases its tables on the Internal Revenue Code prior to the IRS adjustment for current interest rates.

The transfer penalty can be avoided by having the remainderman purchase his or her remainder interest. However, the monies paid to the applicant are then available resources.

I have also discussed in Post 48 the fact that inaccessible resources are excludable resources for Medicaid. Therefore, if the applicant owns property jointly with another individual, the property is an inaccessible resource if the co-owner refuses to sell (Post 48).

If the co-owner is a child of the applicant and provided care for at least two years that enabled the applicant to remain at home rather than go into a nursing home, a transfer to the child is exempt from the Medicaid transfer rules (see Post 6). However, if the co-owner is not a child (a stranger), the applicant has an obligation to pay one-half the net cost with no money to do so. Another situation would be if the applicant owned the property jointly with a sibling (see Post 11), and the sibling resided with the applicant for at least one year prior to institutionalization, the transfer to the sibling also results in a non-penalizing transfer.

The advantage of a transfer to the child or the sibling as discussed above, is that the property is also exempt from the Medicaid lien.

From an estate planning point of view, keep in mind that a joint ownership passes by operation of law, while a tenancy in common is a probate asset and passes under the applicant's will.

As in all areas of Medicaid, an applicant after consultation with counsel must review the pros and cons of any planning technique, particularly when we are dealing with jointly-owned real estate.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© September 2011, Post 162