Ask the Expert: Medicaid and life estate

What are the pros and cons of retaining a life estate in one's house?

This popular strategy became less attractive when New York adopted new Medicaid rules on Sept. 8.

In a transfer with retained life estate, you give your house to your kids or to a trust for their benefit, but keep lifetime occupancy rights. The goal is to qualify for Medicaid nursing home assistance while preserving your children's inheritance. A transfer done at least five years before you apply for Medicaid doesn't delay your eligibility. And your kids inherit the house at market value, so they can sell it with no tax on the proceeds.

Until Sept. 8, Medicaid had no claim on the house after your death. But now, Medicaid can claim the value of your retained life estate to recover its payments for your care. The new law is retroactive, says Lawrence Davidow, an Islandia elder-law attorney. It applies to all existing life estates. The silver lining is that the calculation determining the value of life estates will now use updated life expectancy tables and current interest rates. Previously, a 76-year-old with a life estate in a house owned 50 percent of its value, says Davidow. Under the new rules, he owns about 14 percent of its value. If a Medicaid nursing home beneficiary who owns a life estate in a $500,000 house dies at 76, for example, the agency now can claim $70,000 of its value.

The law's implementation will be delayed by litigation, he adds. It will be challenged because it is retroactive, and arguably more restrictive than federal Medicaid law. But its passage has made retained life estates less appealing.

The bottom line Medicaid can now claim the value of your retained life estate in your house after your death.

Websites with more information bit.ly/tWJpK9 and bit.ly/umCPvV