Life Estate is a Sufficient Property Interest That Has Value for Purposes of Determining Medicaid Eligibility

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Medicaid Attorney

An unpublished opinion from the Appellate Division, E.S. v. Div. of Med. Assistance & Health Services, highlights the importance of evaluating the value of a life estate when determining the resources of an individual.  So what does a life estate interest in property mean?  A life estate is a property interest that gives an individual a lifetime right to live in the property, but upon the death of the individual, any legal interest in the property dies with the person.  In some situations where a person is attempting to qualify for Medicaid, the applicant will transfer the house out of his or her name and give the house to one of his or her children, but retain for himself or herself a life estate that gives him or her the right to live in that house.  While there isn’t a large market for life estates, since the person who buys the life estate only owns the property for the life of the person who sold it, life estates have economic value.  As the case demonstrates, transfers of a life estate without compensation are subject to the property transfer penalties Medicaid imposes on all applicants.

In this case the applicant lived in a house in Paramus with her husband before moving into a nursing home.  Her husband died and gave his estate to his daughter, leaving nothing for the wife/applicant, except their house, which was now just owned by the wife.  She gave the daughter title in the home, but reserved for herself a life estate so she could continue to live in the house.  The daughter sold the house to a third party, but she failed to give any of the sales proceeds from the house to her mom for the value of her life estate.  A year later, mom applied for Medicaid.

The County Board of Social Services held that the sale of the house without compensation for the life estate warranted a transfer penalty.  A fair hearing was requested, and an administrative law judge held the life estate to have been sold for fair market value when the house was purchased.  The Board appealed to the Division of Medical Assistance and Human Services, which reversed the ALJ’s determination, holding the life estate should have been separately compensated for, and the fact that the house was transferred to the daughter outside of the lookback period was irrelevant.  The Appellate Division affirmed the imposition of a transfer penalty on this basis.

To discuss your NJ Medicaid matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.