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Planning Ahead: Part Five
Dunn & Hemphill, PA • Nov 30, 2020
Deed with Reservation of a Life Estate
What does it mean to deed your property but reserve a life estate for yourself? In Planning Ahead: Part 5, we answer this question and explain why a deed reserving a life estate (RLE) might be helpful for your long-term care planning.
A deed RLE gives the grantee something called the remainder interest, which means that the grantee will own your real property outright (without the need for probate) upon your death while you continue to enjoy the land during your life. A deed RLE lets you keep homestead exemption for land tax purposes, and it allows your grantee to receive stepped up capital gains tax basis equal to the fair market value of the property at your death. This means if the grantee sells the property after your death for its FMV he or she will pay no capital gains taxes. These are significant benefits for you and your grantee.
A key advantage of a deed reserving a life estate for long-term care planning purposes is that Medicaid considers it to be a completed gift of that property, which starts running Medicaid’s 5-year look-back period for gifts. Once you deed your property reserving a life estate, if you can wait 61 months before applying for nursing home Medicaid, your property could be excluded from your countable resources for qualification purposes and/or protected from a claim by Medicaid after your death. In our next post, we will give more context as to why these benefits are crucial when we discuss resource and income limits for nursing home Medicaid coverage.
A deed RLE gives the grantee something called the remainder interest, which means that the grantee will own your real property outright (without the need for probate) upon your death while you continue to enjoy the land during your life. A deed RLE lets you keep homestead exemption for land tax purposes, and it allows your grantee to receive stepped up capital gains tax basis equal to the fair market value of the property at your death. This means if the grantee sells the property after your death for its FMV he or she will pay no capital gains taxes. These are significant benefits for you and your grantee.
A key advantage of a deed reserving a life estate for long-term care planning purposes is that Medicaid considers it to be a completed gift of that property, which starts running Medicaid’s 5-year look-back period for gifts. Once you deed your property reserving a life estate, if you can wait 61 months before applying for nursing home Medicaid, your property could be excluded from your countable resources for qualification purposes and/or protected from a claim by Medicaid after your death. In our next post, we will give more context as to why these benefits are crucial when we discuss resource and income limits for nursing home Medicaid coverage.
Planning Ahead Part 1: The Building Blocks of an Estate Plan
Planning Ahead Part 2: The Last Will and Testament
Planning Ahead Part 3: The Durable Power of Attorney
Mississippi's New Transfer-on-Death Deed
An Introduction to Long-term Care Planning
Defining Exempt and Non-Countable Resources
Gifting Assets and Medicaid Asset Protection Trusts
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