Describe and clarify rules on how a life estate affects Medicaid eligibility.
WAC 182-516-0300 Life estates
Effective March 2, 2018
- "Life estate" means an ownership interest in real property only during the lifetime of a specified person.
- Subject to subsection (3) of this section, a life estate is an available resource, unless it is either excluded or unavailable under chapter 182-512 WAC.
- For someone applying for or receiving long-term services and supports, a life estate interest is subject to the home equity limits under:
- For clients of institutional or HCB waiver services:
- If the remainder interest was transferred for less than fair market value, the medicaid agency or the agency's designee will evaluate the transaction as an asset transfer under WAC 182-513-1363. "Remainder interest" is the fair market value of the property at the time the client transferred it and retained a life estate, minus the value of the life estate at the time of that transfer.
- If a client purchased a life estate but has not lived in the property for at least one year after the purchase, the purchase price of the life estate is an uncompensated asset transfer under WAC 182-513-1363.
- If a client purchased a life estate and has lived in the property for more than one year, it is not an uncompensated transfer, unless the purchase price for the life estate exceeded the value of the life estate. Any amount paid for a life estate in excess of the value of the life estate is an uncompensated transfer under WAC 182-513-1363.
- To calculate the value of a life estate:
- Identify the person whose life determines the length of the life estate;
- Identify whether uncompensated value or home equity is being calculated:
- If calculating uncompensated value under subsection (4)(a) or (c) of this section, identify that person's age on the person's last birthday before the transfer; or
- If determining whether home equity requirements are met un der subsection (3) of this section, identify that person's age on the person's most recent birthday; and
- Multiply the property's fair market value by the life estate factor corresponding to that person's age in the Life Estate and Remainder Interest Tables maintained by the Social Security Administration.
- To calculate the remainder interest, subtract the value in subsection (5) of this section from the property's fair market value at the time of the transaction that created the life estate.
A life estate is an ownership interest in real property where the life estate owner (“life tenant”) has the right to possess the property during their lifetime. Upon the passing of the life tenant, the life estate reverts to an original owner (or somebody else) and the life estate ceases to exist. While the life estate exists, the “rest” of the property is called the remainder. The remainder is what is left of the entirety of property rights that are burdened by the life estate.
The parties and rights to a life estate can get complicated, but most life estates are set up in the following way:
- The life estate owner (the life tenant) is also the measuring life. The length of the life estate interest is linked to the life of the life tenant
- The life tenant’s rights are not burdened in any way – they can possess, use, enjoy, rent, etc., the property. Generally, the only restriction a life tenant has is that they cannot “waste” the property (damage or destroy the value of the property)
Because a life estate is an interest in real property, it is a resource for the purposes of Medicaid, and has a value based on the fair market value (FMV) of the underlying property and the age of the life tenant. The total FMV of the property is made of the life estate plus the remainder.
A life estate can be a home as described under WAC 182-512-0350 (1)(b). This means the life estate can be excluded as the home, but is also subject to home equity limits for most long-term services and supports (LTSS) programs.
Example: Sally sold her home to her son Jared, but retained a life estate. Sally’s life estate allows her to possess the property until she passes away. Sally owns a life estate and Jared owns the remainder. Sally’s life estate can be excluded as Sally’s home for Medicaid, but the value of the life estate is subject to the home equity limits if Sally applies for LTSS. When Sally passes away Jared alone owns the home.
Example: Gerrard sold his home because he wants to live closer to his grandchildren. Gerrard bought a life estate in Side B of a duplex owned by his daughter and son-in-law. Gerrard’s life estate allows him to possess the property until he passes away. Gerrard owns a life estate and his daughter and son-in-law own the remainder. Gerrard’s life estate can be excluded as Gerrard’s home for Medicaid, but the value of the life estate is subject to the home equity limits if Gerrard applies for LTSS. When Gerrard passes away his daughter and son-in-law alone own the home (just like they previously did before selling the life estate to Gerrard).
Valuing life estates
The value of a life estate is almost exclusively based on the FMV of the underlying property and the life expectancy of the life tenant. The higher the FMV of the property, the higher the value of the life estate. Further, the longer the life tenant is expected to live, the higher the value of the life estate is in comparison to the remainder.
There are two times when a valuation of a life estate is needed:
- The transaction that created the life estate is in the lookback period for long-term care (LTC) and you need to determine whether there is any uncompensated value in the transaction (e.g., the client did not received sufficient consideration for the remainder or the client paid too much for a life estate)
- You are determining whether the value of the life estate meets the home equity requirements for LTSS
How to determine the value of a life estate (remainder):
- Determine the date you will evaluate FMV (either the transaction date for transfer purposes or the current date for home equity requirements)
- Determine the FMV of the property as of that date
- Determine the life tenant’s age as of their last birthday prior to that date
- Look up the life estate (remainder) factor for the life tenant’s age on Social Security’s Life Estate and Remainder Interest Tables
- Multiply the FMV of the property by the life estate (remainder) factor
- The result is the value of the life estate (remainder)
Example: Sally sold her home to her son Jared, but retained a life estate. Sally was 78 years old on the date she sold her home. The FMV of the home was $400,000 and Jared paid $10,000 for the remainder. The life estate factor (“f”) is 0.47049. (FMV x f) = $400,000 x 0.47049 = $188,196. The FMV of the remainder is $400,000 - $188,196 = $211,804. Because Jared only paid $10,000 for something worth $211,804, there is $201,804 in uncompensated value.
Example: Gerrard sold his home because he wants to live closer to his grandchildren. Gerrard bought a life estate in Side B of a duplex owned by his daughter and son-in-law. Gerrard was 69 years old on the day he bought the life estate. The FMV of Side B was $300,000 and Gerrard paid $185,000 for the life estate. The life estate factor (“f”) is 0.62086. (FMV x f) = $300,000 x 0.62086 = $186,258. Garrard paid $185,000 for something worth $186,258.
Review any life estates the client or a financially responsible member of their AU owns or any transactions related to life estates in the LTC lookback period.
For LTC, if there is a life estate transaction with the lookback period, review the transaction to determine whether any uncompensated value exists and if there will be a transfer penalty.
If the client or financially responsible member of the AU owns a life estate, determine whether the life estate is countable or not. In addition, for applicable LTSS programs, determine whether the home equity limit applied and if the life estate is within the limits.