Your home is often your most important asset. Many families want to protect this asset from the high cost of nursing home care. When nursing home care is not imminent, a common planning technique is to deed the home to a loved one, typically your adult child(ren), and reserve a life estate for yourself. This transfers ownership to your child (remaindermen) while giving you (the life estate holder) the right to live in the home for the rest of your life. If you make it through the five-year Medicaid (MassHealth in Massachusetts) lookback period and retain ownership in the house until your death, then the house value is protected from having to pay for your nursing home costs.
Sounds like reserving a life estate is a good idea…or is it? Let’s look at the benefits:
Living Rent-Free
The life estate provides you with an absolute legal right to use the house, rent free, for the rest of your life. When you pass away, the right of occupancy passes to the remaindermen (your child(ren) or whomever you transferred ownership to).
Collect Rental Income
Another clear-cut advantage is that the life estate tenant is entitled to all the net rent. For example, if you move to another living situation such as an assisted living community, you can benefit from renting out the property and receive all the net rent without sharing it with anyone.
Avoid Probate
Once the passing of life estate holder, title passes by operation of law to the remaindermen. With respect to the property, probate is avoided, and no court proceedings are necessary. Your heirs save thousands of dollars in legal expenses.
Home is Protected from Nursing Home Expenses
Once you make it through the five-year lookback period, MassHealth cannot recover against the home – if you continue to hold onto the property until the time of your death. Since probate is avoided, the property is not considered an estate asset subject to MassHealth recovery. This means that if MassHealth has a claim against your estate for nursing home expenses, the Commonwealth will only be able to seek reimbursement from your other probate estate assets, if any.
Of course, there are other elements of reserving a life estate that may not be seen as benefits and more like disadvantages. We will explore the potential downsides of life estates in our next blog.
Thinking through the complexities of protecting life’s most important asset requires plenty of planning and a deep understanding of the ever-changing MassHealth rules. If your goal is to protect your home from nursing home costs, working with an experienced Elder Law Attorney is essential.
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