Review Sale of Remainder Interests in a Life Estate

In Post 36, there was a discussion about transferring property and retaining a life estate.

The advantages to such technique are the life estate has no resource value and is not subject to the Medicaid lien. However, the disadvantage is that when a property is transferred and a life estate is retained, there is a transfer of the remainder interest. The tables for determining the remainder interest can be obtained from your Medicaid office. However, they are identical to the Internal Revenue service tables of 1988 (before the rate of interest became variable) or are set forth in Rev. Proc. 64-19.

The technique I suggested was that if a nursing home applicant transfers property and retains a life estate, the remainderman should purchase the remainder interest so that there is no transfer.

Although this seems like an ideal solution, there are some drawbacks.

Firstly, after the individual gets Medicaid, the expenses of the life tenant must be paid by the remainderman. That is, the applicant cannot use his or her pension or social security to pay the interests of the life tenant. As pointed out in Post 36, if the remainder interest were transferred to a "protected transferee", (i.e. a child who provided the necessary care to allow the applicant to stay at home rather than to go into the nursing home), there would be no period of ineligibility with respect to the transfer and the remainderman would not have to make any payment since the remainder interest is protected under the transfer rules.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.

© February 2012, Post 185