How can a Life Estate help with my Medicaid planning?
One way of limiting the penalty period is to create a life estate. Once a life estate is created, only the value of the remainder interest held by the child is considered a gift for Medicaid purposes. The value of the remainder interest is predetermined by the Medicaid Agency based upon the age of the life tenant and the value of the house. Let us assume Mary was 70 years of age when she applied for Medicaid. Medicaid has determined that 70 year old Mary holds approximately 60% ownership in the house and Bob owns 40%. The 40% is a non-exempt transfer. Therefore, Medicaid will apply the penalty formula to only $240,000, opposed to the full $600,000, resulting in a delay of eligibility of 24 months opposed to 60 months. (40% of $600,000 = $240,000 divided by the penalty formula of 1 month per every $10,000 worth of value = 24 months of penalty).
