What is a Life Estate Deed (LED)?

Life estate deeds can help protect a home and avoid probate. However, it is important to understand exactly how the life estate deed works before committing to it as a took to protect your home. 

A life estate is a lifetime interest in property. The interest can be measured by the life expectancy of the individual holding the life interest. Let’s say A owns a home and she wants B to live in that home, but she wants it to pass to her daughter C when B dies and not B’s heirs. A would give B a life estate interest in the home and make C the “remainderman”. This means that the home would be B’s for life, and when B dies, the home will be solely owned by C or C’s heirs. 

The holder of the life estate interest (B) can use and occupy the property. However, they are restricted from selling the property, and can be liable for laying waste to the property—as explained below. 

The holder of the life interest is also known as the “life tenant.” Because the life tenant has the right to live in the property for their lifetime, they are responsible for paying all expenses related to the property. They are also under a duty to keep the proper in good repair. Failing to upkeep the property can result in forfeiture of the property to the remainderman. 

This form of ownership avoids probate because the interest in the property held by the remainder man immediately vests in the remainder man upon the life tenant’s death. 

The life tenant can  be the current owner(s) of the home or a third party. Many people choose to keep a life estate interest in their homes and make their heirs the remaindermen on the deed. 

How Does Medicaid Treat this Deed?

A life estate interest in property is not a countable asset. That applies whether you have reserved the right to live in the property for the remainder of your life or if you stand to receive a piece of property at someone’s death because they reserved a life interest and left you as beneficiary. This can be a great way to preserve a piece of property, avoid probate, and qualify for Medicaid. However, it should be noted that when the life estate arrangement is created, that conveyance trigger the lookback period for Medicaid. 

For example, let’s say the applicant, Bob has a vacation home. Bob wants to leave his property to his daughter Jill. Bob reserves the right to live in the property for the rest of his life and gives Jill the right to immediately receive the property upon his death[2]. Because that transfer is a gift, it triggers the look back period. 

The question then becomes: “should I even use a LED”? The answer is it depends. The LED is a great pre-planning tool. If the client is confident that they can make it past the lookback period, then the LED is likely a good choice. If the client has an immediate need for long term care, then it may not be the tool for them.

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Brenton S. Begley

Estate Planning & Elder Law Attorney

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