Creation of a Life Estate

The creation of a life estate is an estate planning tool that can come with many benefits. A life estate works by allowing a person to deed a home or property to a beneficiary while retaining ownership and the right of occupancy during their own lifetime. Once the original owner, called the life tenant, passes on, the property is automatically transferred to the beneficiary named in the deed. The creation of a life estate can bring many advantages. One of these is bypassing probate. Because a property is directly transferred to the beneficiary, there is no need for it to go through probate. Another advantage that comes with a life estate is that if a beneficiary chooses to sell the property that was passed on to them, they may end up paying less in capital gains tax. In some cases, a life estate can also be used to help homeowners qualify for Medicaid. With a life estate, a property deed is transferred to a beneficiary, thereby helping to reduce the applicant’s assets in order to meet Medicaid’s asset limits. For those seeking to establish a life estate for the purpose of qualifying for Medicaid, it is in their best interest to consult with a qualified attorney. The policies and regulations surrounding Medicaid eligibility are complex and require an in-depth understanding of the federal and state laws governing the program.
If you are considering establishing a life estate as part of your estate plan or to help you qualify for Medicaid, reach out to the attorneys at Morgan Legal Group P.C. We have years of experience in assisting clients with estate planning and elder law and can help you get your affairs in order for a secure future.
Russel Morgan - Estate Planning Attorney

Russell Morgan

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212 - 561 - 4299

Email:

rmorgan@morganlegalny.com

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he Morgan Legal Group PC has represented individuals who have been harmed by the conduct of others as well as corporations.

important things you should know

Questions And Answers

In estate planning and elder law, a life estate functions as a tool that allows for a property owner, or life tenant, to transfer ownership to a beneficiary during their lifetime. Although the deed to the property may be under the beneficiary’s name, the life tenant will retain ownership and the right to the full use of the property until the time of their death. When the life tenant passes away, ownership of the property is automatically transferred to the designated beneficiary.
With the creation of a life estate, a life tenant opens the way for a shared ownership of sorts. The beneficiary becomes part owner of the property but does not take possession until the life tenant passes away. Although a life estate is like a form of joint ownership, there are a few key differences with regards to the life tenant’s rights. For instance, a life tenant has the right to use the property in any way they wish. This means that they can occupy the property themselves, rent it out, or make renovations as they see fit. However, one thing they cannot do independently is sell the property. In order to sell a life estate property, the life tenant must obtain the beneficiary’s approval as they have a shared interest in the property. It is also important to note that if the life tenant and beneficiary indeed agree to sell the property, the returns will be divided between the two parties with the life tenant’s half to be determined by IRS mortality tables. In other words, the older the life tenant is, the smaller their portion of the returns will be.
For the most part, Medicaid does not count a person’s home towards their asset limit when applying to the program. However, there are certain conditions that may cause an applicant’s house to be included in their asset count. These conditions include the following: if a home’s value is higher than the state’s total equity value limit, if the property title is not under the applicant’s name or their spouse’s name, or if the applicant does not currently live in their home. Under these and other situations, creating a life estate may allow applicants to safeguard their home by transferring the deed to a beneficiary and still allow them to qualify for Medicaid benefits.
A life estate can provide several advantages for some individuals, but it is not for everyone. There are several legal issues to consider, and certain complications may arise down the road. One important thing to note is that a life tenant cannot make certain decisions without consulting with the designated beneficiary of the property. Selling the property or terminating the life estate must be approved by the beneficiary. The beneficiary must also grant their approval before any modifications can be made to the terms of the life estate. Furthermore, should the beneficiary face financial difficulties, creditors and other debt collecting entities may look to the home for repayment. Similarly, if the beneficiary is involved in divorce proceedings, their spouse may claim an interest in the property. For some individuals, it may turn out that the potential issues that accompany a life estate outweigh the benefits. In any case, it is best to consult with a qualified attorney to determine whether a life estate is the right choice for Medicaid and estate planning.