A. The life tenant has the legal right to remain in the house for as long as they live, whereas, if he or she transferred the house outright, the new owner could legally sell or mortgage the property the next day forcing the previous owner (you) to vacate the premises and it is useful for Medicaid eligibility and protection from Medicaid recovery by New York State as shown in the following example:
Jane Doe, a 69-year-old widow, owns a home in Westchester County, New York with a fair market value of $250,000.00. Her home is her most valuable asset which she wants to leave to her son. Jane has a progressive illness which renders her ineligible for long term care insurance. Therefore, she may have to apply for Medicaid as her health declines. By drafting a deed which retains a life estate for Jane with the remainder to her son, the following can be accomplished:
a) For Medicaid eligibility purposes, the transfer to Jane's son is not the property's fair market value of $250,000.00. Instead the value of the transfer of the remainder to the son is only $94,785.00. If Jane had simply transferred the house to her son she would not be eligible to receive Medicaid until 60 months from the date the deed is executed. By retaining a life estate, Jane will be eligible to receive Medicaid after only 14 months have passed from the date of the execution of the deed;
b) A life estate is a "limited interest in real property", meaning New York State will not require Jane to sell the property, nor will the state place a lien on the property as a condition of paying a nursing home Medicaid for Jane's care;
c) Medicaid laws in New York limit recovery to probate assets of the Medicaid recipient or her spouse (in our example Jane is a widow). Since the life estate is extinguished upon Jane's death, the property passes to her son out of probate and is therefore not recoverable by the state; and
d) Jane remains for purposes of real property tax administration and therefore continues to qualify for the STAR exemption, veteran's benefits and any other property tax reduction available to the "owner" of the property.