Many individuals protect their home from Medicaid and the cost of long-term care by transferring their property to a family member but retaining a life estate interest. Often a parent will retain a life estate interest so that his or her name will remain on the Deed. This allows the parent to have exclusive and sole possession, use and enjoyment of the property during the parent’s lifetime.
If the property is not sold until after the parent dies then the property is not subject to Medicaid estate recovery. According to the New Jersey Medicaid regulations, the State of New Jersey is not allowed to impose a lien against the life estate interest in the property.
What happens if the property is sold during the lifetime of the parent? According to the New Jersey Medicaid agencies, a portion of the proceeds must be paid to the life tenant, otherwise it will be considered a gift. Therefore, if a parent owns a life estate interest in the property but then requires nursing home care, the State of New Jersey will require that a portion of the proceeds be paid to the parent if the property is sold during the parent’s lifetime.
In the case of H.D. v. DMAHS and the Ocean County Board of Social Services, the issue of the life estate was the subject matter of litigation before an Administrative Law Judge. In that case the individual’s home in Tuckerton was transferred from the elderly mother to her son and daughter-in-law, but she retained a life estate interest. The Administrative Law Judge and the Director with the Division of Medical Assistance and Health Services determined that the life estate had a value and the relinquishment of that life estate was the transfer of assets for less than fair market value.