IMPORTANT: THIS ARTICLE HAS BEEN DRASTICALLY REVISED IN 2022. PLEASE SEE THE UP-TO-DATE VERSION HERE.
Understanding life estates may be essential if protecting the home (or other real property) is an important goal. Getting the concept down, however, can be a bit confusing. Confusion be gone! Read on!
Blame the English for our confusing real property law. I am convinced that the concepts involved in this article were invented in 1095 at Ye Whyte Horse on Thames Taverne four hours after closing time and some of the barristers had gotten a bit into their cups.
Lately, many have been asking about so-called “Lady Bird Deeds.” I’ll explain below . . . but you are going to have to read the whole article in order to understand.
First, take a look at other types of ownership . . . it might make understanding life estates easier.
Most people think of real property ownership as fee simple. Someone with fee simple title completely owns the property. She can sell it, give it away, rent it, use it as security on a loan and do pretty much anything she wants with it (that isn’t otherwise illegal, of course). She is also responsible for paying the taxes on the property and any debts encumbering the property. The property is subject to the claims of her creditors. When the owner dies, the property passes through her estate (as directed by either a will or the state laws of intestacy).
Tenancy in Common
If two or more people own property the property is likely tenancy in common. Think of it something like a partnership among the owners. Each can use the property (unless they have a contract to the contrary). Each can sell his share, give it away, and use it as security for a loan. If one owner dies, his share passes as directed by his will or the laws of intestacy. Creditors can claim against his share. InGeorgia, a married couple is presumed to own property as tenants in common, although they can make other arrangements in a deed.
Joint Tenancy With Rights of Survivorship
This type of ownership might seem similar to tenancy in common, but it isn’t. Initially it looks like a tenancy in common, but if one owner
dies, the other owners take his share (divided among themselves). Sort of a “Last Man Standing” game because the property may end up completely owned (in fee simple) by the last surviving owner. Incidentally, in North Carolina, a married couple is presumed to own property as “tenants by the entireties” . . . which for purposes of this discussion acts the same as a joint tenancy with rights of survivorship (although they can opt out).
Now For Life Estates . . .
If one person owns the right to occupy and use property for her remaining life (she is called the “life tenant”) and the title specifies that the property passes automatically at the instant of the life tenant’s death (these folks are called the remainder interests . . . in the less gentle times of about 15 years ago they were called the remaindermen) the result is a life estate. Many folks call it “life time rights.”
While the life tenant has a right to live on the property or perhaps to collect rent on the property, she also has the responsibility of keeping it up and paying taxes on it.
Although theoretically a life tenant can encumber her life estate or sell her life estate, all she can do is dispose of or restrict whatever it is she owns . . . a life estate. No banker in his right mind will lend against a life estate because when the borrow dies . . . poof! . . . so does the banker’s security. The property passes free to the remainder interests. Same thing happens with respect to the life tenant’s creditors. Poof! Gone. Now don’t get excited . . . if the life tenant owned the property in fee simple and encumbered it before setting up the life estate the creditor isn’t going anywhere until someone pays up!
How To Set Up A Life Estate
Two ways. A fee simple property owner can set up a life estate for himself by conveying a remainder interest in the property to the intended remainder interests. The deed may say something like “I, Falstaff, the Grantor give Blackacre to Prince Hal, but retain a life estate in Blackacre.”
A way to set up a life estate for another person is for a fee simple property owner to convey property to another person as the life tenant and to yet another person as the remainder interest owner. The deed may look like this: “I, Hotspur, convey Blackacre to Falstaff for life, with a remainder interest to Prince Hal.”
Will Medicaid Count a Life Estate for Eligibility Purposes?
In Georgia a life estate interest is a Medicaid-countable asset unless the property itself is not countable for some other reason (probably because it is the primary residence). In North Carolina a life estate is not countable . . . it simply renders the property regardless of value or size or type as a noncountable asset for Medicaid purposes.
Can the State Collect On Life Estate Property?
No. That is the beauty of a life estate. North Carolina only collects against probate property (and a life estate is not probate property . . . remember, it passes automatically at the life tenant’s death). The Georgia Department of Community Health says they can do it, but they never have and, unless the General Assembly drastically changes the law, they never will (Hint: read above about how a creditor goes “Poof!”).
Are There Other Medicaid Problems?
Yep. Remember that if you transfer something valuable it will not count as an asset for Medicaid (you don’t own it anymore, after all!). However, the transfer will raise issues of whether a transfer penalty should apply. If Falstaff transfers $100,000 cash it will not count because he does not own it; however . . . in Georgia it will count as a transfer penalty of about 20 months and in North Carolina about 16 months if Falstaff applies for Medicaid within five years of the transfer.
The problem with setting up a life estate is that most of the time something valuable is being conveyed. For example, if Falstaff is 70 years old, Medicaid uses an actuarial chart that shows Falstaff’s life estate to be worth about 70% of the value of the property, and Prince Hal’s remainder interest to be worth 30% of the property value.
If Blackacre is worth $100,000 and Falstaff sets up the life estate by transferring the remainder interest to Prince Hal, then Falstaff has transferred property worth about $30,000 (assuming Blackacre is worth $100,000). If Falstaff applies for Medicaid within five years he has a $30,000 transfer issue to deal with.
On the other hand, Falstaff could have sold Prince Hal the remainder interest and there would be no problem.
One planning strategy that is occasionally used is for Falstaff to buy a life estate. If he pays $70,000 for the life estate in Blackacre, he will pay fair market value so there will be no transfer penalty. Further, in North Carolina the life estate won’t be countable as an asset (it will be in Georgia unless it is his residence).
A Final Life Estate Problem
The last paragraph sounded pretty neat, hunh? Not so fast. The rules slow that up a bit by saying that if the life estate purchased was in property that was “the home of another person” then Falstaff would actually have to live in the property for at least 12 continuous months. If he doesn’t live there 12 months or more, there will be a transfer penalty on the purchase even though he may have paid fair market value. If the property was not the home of another person, Falstaff should be OK.
Flying to the Rescue (From Texas?): Lady Bird Deeds
I have no idea why they’re called Lady Bird Deeds or if Lady Bird Johnson used them
(although her husband was one of Medicaid’s Founding Fathers).
A Lady Bird deed looks like a standard life estate deed at first glance, except that the Grantor retains the right to change his mind or give the remainder interest to someone else. “I, Falstaff, give Backacre to Prince Hal, but I retain a life estate in Blackacre and further retain the right to cancel this deed or to give the remainder interest to any other person so named.”
Would you pay Falstaff money for the remainder interest? Of course you wouldn’t. The remainder interest is worthless because Falstaff could always change his mind. On the other hand, if Falstaff dies without changing his mind, Prince Hal will automatically take Blackacre.
In North Carolina, because the remainder interest has no value Falstaff has not made a valuable transfer and there is no penalty. Further, on his death the property should pass free of estate recovery. Lady Bird deeds have worked fine for years. They do make me a bit nervous . . . they seem just . . . too easy. I’ll use them, but only if nothing else will work.
Georgia has an open season on Lady Birds. They don’t work. Period.
PLEASE NOTE: I HAVE CLOSED COMMENTS TO THIS ARTICLE. SORRY, BUT AFTER RECEIVING OVER 100 (!) COMMENTS I SIMPLY COULDN’T CONTINUE TO RESPOND AND STILL FIND A BIT OF TIME TO PRACTICE LAW. THANKS FOR YOUR INTEREST, THOUGH.
monroe Pannell says
Bob-read this article. I am puzzled that a life estate is not a countable asset. Back in 1965 my grandmother (who was 60 at the time) wanted to give her son –my dad something–she had already given his two brothers some land. So she conveyed to him a remainder interest in the house and lot reserving her life estate. My grandmother never accumulated great wealth in her lifetime- a hosiery mill worker. She stayed at home until about 1993–she was eligible for skilled nursing. But I recall that my dad had to buy her out of her life estate-spend down the proceeds- so she could qualify for Medicaid. What am I missing here.
Bob Mason says
Monroe, I’m not sure what the rules were back in 1993 (almost 20 years ago). That does seem strange, though. In any event, life estates are not countable pursuant to MA-2230 VII.A.4.a.
Jen Rogers says
I may not be asking my question in the right comment area, I did ask this once and will try again.
If a spouse is in a Nursing Home and receiving Medicaid for long term care, the community spouse has home in community spouse name only, when can the community reserve a life estate in the property in order to protect it in case the community spouse has to enter a nursing home. Can this be done while the Nursing Home spouse is still living or do they wait?
Bob Mason says
Yes, it can be done while the nursing home spouse is still living and it will not effect the nursing home spouse’s benefits. HOWEVER, the transfer involved for the community spouse in setting up the life estate (as outlined in the article) could have ramifications for the community spouse if she applies for Medicaid within 5 years of her setting up the life estate . . . the transfer penalty would depend on how valuable the remainder interest in the property is.
Max Smith says
With the lady bird deed, will my property stat in in my name and after passing, the property will go into the name of my beneficiary? Please help me here, I want the property to stay in my name but go to my beneficiary upon passing.
Jen Rogers says
If one spouse is in long term care nursing home and receiving Medicaid, the other spouse is living in the community and the home is in the name of the community spouse only, can the community now transfer the home reserving a life estate for herself to protect the home place or is it too late. Can this be done while the nursing home spouse is still living??
Bob Mason says
See my reply under Monroe Pannell’s thread above . . . I think I answered your question. Let me know if you need more info.
Jen Rogers says
Yes Mr. Mason, you did answer my question and I thank you so much. The two posts were a result of my not being sure where to comment.
I do want to state that the home was also considered the home site when the Nursing Home spouse was being certified, however the home was already in the name of the Community spouse only. Will that make a difference in going ahead and establishing a look back for the Community Spouse? We had thought if the home was sold or transferred the Community Spouse would have to re-invest in new property within a certain time frame.
Bob Mason says
The fact that the property was already in the community spouse’s name will make no difference. As far as reinvesting sale proceeds, that has nothing to do with Medicaid.
Jen Rogers says
Ok Mr. Mason, I will not take more of your time. I had thought that Medicaid rules stated that if a homesite was sold while the Nursing Home resident was still living in a nursing home and the proceeds from the sale were not re-invested in another home of equal or more value then part of the money not re-invested would belong to the Nursing Home spouse thus causing a problem.
In our case the home is not in the name of the Nursing Home spouse so you have answered our main question and I thank you again for all your help.
Mazie Craven says
Thanks for discussing the life estate issue at the May 10th meeting at the library. I appreciate the explanation in writing which makes it easier to absorb and understand. See you at this Thursday meeting. Thank you for all your time and effort you have put into this. Your techincal abilities aren’t half bad either!!
Bob Mason says
Why, thank you!
Lynn E says
When granting a life estate to someone else, what are the tax implications, such as gift tax and step up basis when the property is sold for the giver and the grantee
Bob Mason says
The value of the remainder interest is a gift. North Carolina has no gift tax (nor does Georgia, if any Georgia readers see this). The Feds DO have a gift tax. However, under the federal gift tax, you may gift up to $13,000 a year to as many individuals as you like without even having to think about a gift tax return to the Feds. That increases to $26,000 for you and a spouse. Even if you go over that limit and are required to file, you don’t have to even think about any taxes due unless you have made gifts in excess of $5,000,000.
The remainder interest will receive a full stepped-up basis.
Lynn E says
Mr.Mason, My mother is considering making a life estate to me however in reading your answers we are confused. My father is residing in a Nursing Home and is already approved by Medicaid, the house is in sole name of my mother. We read in the
North Carolina guidelines on asset transfers quote” The look back period for 1 spouse controls for the other spouse even if the 2nd spouse has not yet applied.
Also Transfers of property exempt as a former home site are penalized if transferred and change of ownership is always penalized, even if it was exempt at approval.
Does this mean that we will have a problem. We are beyond confused
This has confused both myself and my mother as you answered that it would not affect my fathers Medicaid if my mother makes this life estate. Could you clarify.
Bob Mason says
Take them one at a time:
1. The look back period does indeed apply “even if the the 2nd spouse has not yet applied.” The look-back period does NOT apply with respect to the nursing home spouse AFTER the nursing home spouse has been approved for Medicaid. The look-back period DOES apply for one spouse if the other makes a transfer BEFORE the non-transferring spouse has applied for and been approved.
2. I’m not sure what “guidelines” you are referring to, so it is hard to answer.
3. As the article says, transfers of ownership by the community spouse AFTER the nursing home spouse has been approved are not sanctionable transfers as to the nursing home spouse . . . it doesn’t matter what the community spouse does.
4. It MAY matter if the community spouse later applies for Medicaid herself . . . then it may be a penalty for HER . . . it will not matter to her spouse in the nursing home.
Lynn E says
Thank you Mr. Mason. so your number 4.reply saying that it does matter if the community spouse makes a transfer they will go by the first spouse look back, which in our case would mean they would look all the way back to 2007, thus more than a 5 year look back for the community spouse if she had to apply for Medicaid.
Are we understanding this right. If my mother keeps a life estate for herself and the remainder to me, then if she had to apply at some point, they would look back all the way to 2007 and count any transfers from that point on meaning for her she would always be penalized, not just 5 years???
I am thinking that even if my father passes before my mother, our chances of making a life estate are gone if my mother has to ever apply for Medicaid
Bob Mason says
No, no . . . we’re getting all snarled up here. If community spouse makes a transfer of assets after the nursing home spouse is on Medicaid:
(1) It will have NO effect on the nursing home spouse’s Medicaid,
(2) It COULD affect the community spouse if she applies for Medicaid within 5 years of the time she transferred the asset. I’m not sure where you’re getting the concerns about looking back to 2007. Never, ever is there a penalty imposed more than five years after a transfer.
Lynn E says
Ok, you have answered this in a way we do understand. We were thinking since the look back for 1 spouse controls for the other spouse even if the 2nd spouse has not yet applied would cause us to always have a look back all the way back to 2007.
Thank you so much. We understand now. My mother would have her own look back since my father has already been approved. You have saved our day. Thanks again.
Bob Mason says
Great! Glad to help.
What if the mortgage holder did a quit claim LE deed in 2009 and moved to a retirement community? Then the co owners on deed paid the mortgage and renovated. In 2015 they got their own mortgage on the property. Can medicaid pursue anything if it had been a total of 8 years since the life estate was created. And two years since any interest in the property was transferred to present owner who had been on the deed since 2009. Now maintaining sole ownership.
Hi Bob, My husbands parents deeded their home to us and kept a life estate on it about 15 yrs ago or more. Both his parents got medicaid later in years. His father passed away 4 yrs ago. His mother has an in home aid worker 8 hrs a day 5 days a wk. She did spend some time in the nursing home after a hip fx. She now lives with us and her aid comes to our house while we are at work. Her home is sitting empty and we have the up keep of the home, powerbill, lawn care, ect. We were told if we sold the home it would be a transfer of property and she would be penalized on her medicaid. We did give a small strip of the property to neighbors about 2 yrs ago that had a tax value of around $30. After doing this Helen(mother-n-law) was contacted by her social worker and we were told that even though we received no money, it was still a transfer of property and would have to pay back $100 to the in home aid company.
I don’t understand why we can’t sell the house, it’s hard to keep 2 homes up. She will never go back to her home, she’s 89 yrs old. She will live with us up until we are unable to care for her, then she will go to the nursing home. If we sold the house, the money would go toward our home.
Could you help me to understand this better??? Thank you!
Bob Mason says
If your mother-in-law truly set up a life estate (she kept a life estate and your husband owns the “remainder interest”) both she and your husband have a current ownership interest in the house. Her interest is worth 29.526% and your husband’s interest is worth 70.474% (I had to look that up on the life estate charts . . . so just take my word for it). So while the house is not a countable asset for Medicaid purposes, if she transferred her interest for less than fair market value, it would be a Medicaid sanctionable transfer. In other words, if the house was worth $100,000 and you gave it away, she would be hit with a Medicaid transfer sanction on $29,526 (29.526% of $100,000 . . . the value of her life estate). When the strip worth $30 was given away her life estate was worth 32.262% (it gets smaller the older she gets) . . . so she had a transfer of $9.68 . . . it is absolutely beyond me why they penalized her $100 . . . it may have been an error . . . who knows.
If you sold the home, $29,526 (assuming, as an example, the home is worth $100,000) then $29,526 would be treated as hers and $70,474 would be treated as your husband’s. With $29,526 your mother-in-law would no longer be eligible for Medicaid. Of course, if she transferred the money to your husband she would have a $29,526 Medicaid sanctionable transfer.
My informal advice (not legal . . . just personal . . . I can’t dispense legal advice without a formal client relationship) would be NOT to sell the house until your mother-in-law’s death, if at all possible. It will pass to your husband 100% free of estate recovery and he could do what he wants with it then. If the upkeep is getting painful, consider renting it out. As life tenant, the rent (net of the expenses of taxes, maintenance, etc) belongs to your mother-in-law and could be used for her care (or perhaps would be used to reduce Medicaid dollar-for-dollar).
Hope this helps!
Thank you so much for your help!
That is in the state of NC.
You said in one of the above comment answers that Community spouse with property in their own name could transfer the property while the Nursing home spouse is in a Nursing home receiving Medicaid.
I am wondering how this is not considered a penalty to the Nursing home spouse when in North Carolina property cannot be transferred unless both spouses sign simply because they are married and under North Carolina law it requires both signatures.
Bob Mason says
I love it when people pay attention! Good question. Transfers between spouses are not sanctionable transfers. So what you’d want to do is transfer from the property interest that the nursing home spouse has to the community spouse . . . resulting in the entire property being in the name of the community spouse. THEN transfer it. Just don’t forget that the transfer by the community spouse has potential ramifications for the community spouse in case he or she later has to apply for Medicaid.
Thank you Mr. Mason for the answer, but as I was asking, how can the community spouse make a transfer in North Carolina while still married, even if the property is in one spouses name. In North Carolina it is a law that you cannot transfer without both signatures regardless who owns it if you are married.
addition to above reply. So, if under North Carolina law it requires the nursing home spouse signature by virtue of marriage, then would this not be a transfer of martial interest in the property by the nursing home spouse and therefore be a penalty under medicaid.
Bob Mason says
In North Carolina and Georgia, transfers between spouses are not penalized.
In North Carolina and Georgia, if a community spouse spouse transfers assets AFTER the other spouse has been qualified for Medicaid, that transfer will not disqualify the nursing home spouse.
If a life estate holder is relocated to an assisted living/rest home with no hope of returning to the home, does the life estate terminate?
Bob Mason says
My parents are both 80 years old and my mother’s health is beginning to fail. They own their home with no encumbrances that I am aware of and want to deed it to me (I am single) and retain life estates. They are on medicare and have retirements incomes and social security incomes. If they do this now will I have tax ramifications to deal with now? The home is valued at approximately $170,000. Will they be penalized qualifying for Medicaid within 5 years of the transaction? Should the house be put in my father’s name first before creating the life estate deed transfer?
Bob Mason says
Sorry for the delay! While there will be no real tax ramifications, the creation of the life estate and the transfer of the remainder interest to you WILL create Medicaid transfer penalty issues if either applies for Medicaid within 5 years. There IS a better way to accomplish the same thing, but it is way, way too complicated to explain in a com box.
D. L. says
Could you tell me is nc used only non probate for medicaid nursing home recovery? This is heir property. Also has there been a change in allowing liens in nc?
Bob Mason says
Nonprobate property only . . . and NO liens!
My mother inlaw,in North Carolina, put her home in a Life Estate March 2009 naming her four children as Grantees with one quarter interest each. One year ago the decision that she needed to enter an Assisted Living facility was made by the child that had Power of Attorney on the advice of a doctor. All four children were not in agreement with this decision, but that is a story for another day.
My husband has been contacted by his sister, who has been made General Guardian as of Feb 2013, that in order to continue paying for their mother’s care her house needs to be sold. It was advised that their mother’s share would be approx. 39 percent and the balance would be divided by the 4 siblings. It is understood that all four siblings and their spouses have to sign off on everything pertaining to the sale.
It has been found that in my mother inlaw’s will, she wants everything divided equally between her children. However, she did specify that there were to be deductions made from 2 children’s inheritance due to money that she had given previously.
Because of the ill feelings and lack of trust, there are questions. Can the guardian take the will into consideration when the proceeds of the sale of the house are disbursed? Also as general guardian, is she required to give any type of accounting to the other 3 siblings of their mother’s affairs?
Bob Mason says
You are correct . . . unless everyone agrees, there is NO sale. Everyone must sign the deed upon sale for an effective sale. No deed, no sale.
Her will would have nothing to do with how the sale proceeds are divided. If she was deemed to own 39% as a result of her life estate, then the four “remainder” interests (the four kids) own 15.25% each (61% total). Each kid walks away with 15.25% upon sale and can do anything he/she wants with it.
I have written before. Not sure if you got it. I have spent months on trying to find some answers. You just have written that NC is probate only, for medicaid recovery if I am understanding most of what I have read. My mother, brother and I are heirs to our fathers property. My mother passed away and it was our understanding since she was not sole heir, the real property would be ours automatically at her death. We are the only heirs from our father since our gr-grandfather. This property was in our family at that time. We have been given a bill as we understood was required by the Federal Government, but did not think we had anything available to them, since we had been signed off to medicaid, along with what income she had after her money had all been spent on her care and were not advised of medicaid recovery, but thought unless we sold. How in NC do they take land without a lien? I have had several elder care lawyers tell me that they did not know enough about this to answer my question, one I paid to tell me that. Also I had a lawyer tell me that everything had to go through probate. Please help! It will be a year since she died in January. The person in Raleigh that was handling hers told me the only thing that would have not resulted in medicaid recovery would have been life estates. I have printed off hundreds of pages that tell me as I believe. Thank you in advance.
Bob Mason says
It is difficult to answer from the facts. I am unclear as to what is going on here. If your mother owned a portion of the land with others (called a tenancy in common), upon her death that portion would be a probate asset of her estate and, yes, available to estate recovery. Contrast that with what is called a “joint tenancy with rights of survivorship” (her share passes automatically without probate . . . and without estate recovery) or with a life estate (she has a lifetime right only and upon her death it is “extinguished” with no estate recovery and the “remainder interests” owning the property). I simply can’t tell exactly how the property was titled.
Sorry you’ve had problems with other attorneys. If I had all the facts I could easily tell you what is going on.
Let me try again. We inherited the land from my father. My mom would be an heir with my brother and myself. She passed away in nursing home at l05 and I was thinking we would be joint heirs. My father had no will. Mother thought she had to have a will and at 95 we took her, since it was bothering her so much that she did not have one. She just told them that she wanted her children to have everything she had and was added, to be theirs absolutely and in fee simple: and to our children if we were deceased. This farm had been in our family since they came to US in late l700s and we strived to pay taxes but had no plans to sell it. Our grandparents lived hard there, spring for water and no electricity. We now have just gotten in a forestry program, which will help. Sorry for the long explanation. The bill is for over $l00,000. Thank you for your patience and help.
Dear Mr. Mason,
I was doing some research on life estates and came across your website. I just wanted to write and commend you for providing such detailed and helpful information to people who may or may not have the resources to hire an attorney. Excellent work! Any chance you’re licensed to practice in Virginia?
Bob Mason says
Why, thank you! No, I am not licensed in Virginia. Let me know if I can make a referral.
If the remainder interest wants to buy out life tenant, what are the tax consequences? Does the money paid to the life tenant increase basis of the house? Does this transaction create any taxable event for the life tenant?
Bob Mason says
Well . . . it depends. The life tenant will be treated as selling a portion (depends on the age of the life tenant) and he/she will be taxed on that portion if they would have been taxed on the whole. For example, if I owned 100% and am subject to capital gains if I sell, then we might calculate my life estate to be equal to 20% (maybe) and I’d be subject to capital gains on that portion. If the life tenant is on Medicaid (or may be soon) if the life estate is sold for less than full value, there could be a Medicaid transfer sanction. Example: House is worth $100,000. My life estate is worth $36,000. I sell it for $30,000. Because I “undersold” to the tune of $6,000, that $6,000 will be treated as a sanctionable transfer.
My dad holds a life estate on property in MI where four of us were deeded the property. Two of us want to sell and the other two agreed to buy us out. Can that be done before the life tenant has deceased? Are there any tax consequences on this type of transaction?
Bob Mason says
Sure! Unless there is something really strange under Michigan law (I am not a Michigan attorney) the “remainder interests” (the four of you) are free to transfer, sell, whatever your interests. If the value of your remainder interest has increased in value since you received it, you will be subject to capital gains tax.
Regarding Lady Bird Deeds in NC….how far in advance of applying for Medicaid does the Lady Bird Deed have to be in place in order to avoid penalties and inclusion in probate?
Bob Mason says
Sorry for the late reply . . . somehow I missed this. The advantage to a Lady Bird Deed is that it can be done at anytime before she dies. There ARE disadvantages, for which I would refer you back to the article.
Mr. Mason, I am the grantee of a lady bird will that my father, who has recently passed away, set up. My stepmother is listed as a grantor along with my father as my dad wanted her to have life time rights. At this point, with my dad passing and stepmom still living, what does the lady bird deed mean for me? The property still has a mortgage and it is my stepmother’s place of residence. Who has legal responsibility for the mortgage/insurance/taxes?
Bob Mason says
It PROBABLY means that she has a right to remain there for the rest of her life and, that unless she changes her mind and cancels the deed (you can do that with a lady bird deed) the house will pass to you on her death. In the meantime she is legally responsible for the mortgage, maintenance, taxes, etc.
George Daviswas says
My wife and I established a life estate General Warranty Deed with her 90 year old sister, Nina, on
12/18/2008 when Nina was living independently. Nina is no longer capable of living by herself, and we have take her into our home. We three now want to sell the house, the proceeds to be used for Nina’s general living expenses in our home.
Since the look back period has expired will the proceeds of the sale be considered “countable” by Medicaid if, in the future, Nina should have to go into a nursing home? And what effect will the sale have on my wife and I and Nina’s taxes. House value is about $145,000. She bought it about ten years ago for $115,000. One last question – can you give an estimate on how much we can reasonably charge Nina for rent.
Nina and my wife and I have annuities. I have questions regarding them, but I want to do that in your office.
Bob Mason says
George, I think I may have answered this under another column. If not, then here goes. When you sell the home there will be TWO sellers. Nina will be deemed to own the life estate (lifetime right) portion and you and your wife the portion that you expect to take when Nina dies (the remainder interest). Each has an assigned percentage value based on Nina’s age. Part of the sale proceeds will be yours . . . free and clear. But a portion of the cash will be deemed Nina’s and countable for Medicaid purposes. Of course, if she is living with you she can pay rent . . . but I have no way of being able to estimate a fair rental charge . . . I’d leave that to a local realtor.
Hi Bob, I am in Ga. ,my mother went in the nursing home in 2004 at the age of 79 and received Medicaid she passed away in Jan. 2015. In 1994 she did a warranty deed where she deeded her property to my brother and myself ,she as grantor reserved a life estate for and during her natural life. My question is since she reserved a life estate will this be subject to estate recovery ? We have not probated .
Bob Mason says
Thank you for answering my question, and thanks for taking the time to help folks like us out ! God Bless
Bob Mason says
You aren’t fools! You likely know a lot about something I haven’t a clue on . . . that doesn’t make me a fool. Likewise with you . . . this just happens to be what I do!
Toni Beatty says
Dad is in long term care and will not return home. Went on Medicaid and their home was transferred to Mom. Mom did a Ladybird deed to me and my 2 siblings. Mom died. House transferred to the three of us in 2013. It has been empty and we have been paying taxes and expenses and trying to sell it. We just sold the home and I cant figure out how this is viewed by the IRS for tax purposes. Will we owe federal taxes? Is it a second home? The siblings and I are in our 60″s and haven’t lived there In decades. The house was paid off years ago. What is this kind of sale called? Please give me a clue. Thank you.
Bob Mason says
I cannot give you definitive legal advice in a discussion forum. HOWEVER, from what you have written you and your siblings received a stepped up basis in the home upon your mother’s death. Normally, “basis” is what you paid for an asset together with additional amounts you may have invested (and other technical adjustments). hen you sell an asset, the difference between what yu received and your basis is “gain” . . . and that’s what you’ll be taxed on (there are exceptions for your principal home). On the other hand, if you received the asset as a result of someone’s death (the case with a life estate) your basis is the fair market value on the date of that death. If your Mom died in 2013, find the value of the house on that date. When you sell the house, the difference between what you sell it for and the FMV on the date of your Mom’s death will be your capital gain . . . which may very well be ZERO.
Ann Reid says
As a former English teacher, I believed wholeheartedly in the universality of Shakespeare’s wisdom, but – until your article- did not realize just how correct I was…
I am a South Carolinian; my husband and I can no longer take care of our modest home, appraised for $125,000, the way it should be cared for. We are not concerned about Medicaid penalties. We just want to transfer/gift, etc. our home to our two adult sons in a way that would be most beneficial to them. We are not quite ready to move into a retirement complex, but see that this will be a necessity in a few years. We have income that will sustain us when the time comes to move without money from the sale of our home. Every method of deed transfer that I’ve read about has undesirable consequences. Could you suggest a method of deed transfer that would be least “painful?”
Bob Mason says
Yes. Transfer it to a trust and provide that it will pass to your sons on your death. They will not have to pay capital gains tax on the inherited house (which they would if you simply transferred the home to them and they, in turn, eventually sold the house).
Ann Reid says
Thank you for your response. You offered to refer a Virginia reader to a local attorney for legal help. I value your opinion and would like to know if you could refer me to an attorney in the upstate of South Carolina (Easley/Pickens/Greenville).
Bob Mason says
I will reply offline to your email address.
Courtesy of Zero Hedge: In April the number of people not in the labor force rose by a whopping 522,000 from 87,897,000 to 88,419,000. This is the highest on record. The flip side, and the reason why the unemployment dropped to 8.1% is that the labor force patpociratiin rate just dipped to a new 30 year low of 64.3%….
We live in NC. My husband inherited a home from his late X-step father one year before he and I were married. My husband’s mother moved into the inherited house after the X-step father’s death with permission from my husband. He would like to now give her “lifetime rights” to this home. Will he need my signature to complete this transaction? Again, the house is only in his name. Thank you in advance.
Bob Mason says
I would draft the deed to include your signature. The reason is that North Carolina gives surviving spouses (what you would be if your husband dies) all sorts of rights to ANY real property owned by the deceased spouse during the marriage (even if it was in his name only). The reason for putting your name on their is to show that waived that right and you won’t interfere with your mother-in-law’s life estate. If he dies, she continues to live in the house for the rest of her life, but it passes on her death to whomever is named in the deed (you? your husband? his estate?) . . . that’s up to you all.
Tammy Gilstrap says
My mom is 74 years old has adopted her grandson, my father passed away two years ago. My question is what is the best thing for her to do about her home valued at 150,000 and Medicaid ? She has a minor child that would need to be cared for if she went into a nursing home. She wanted to put the home in my sister and my name with her having lifetime rights to live there but the lawyer talked her out of it. I am worried about her needing Medicaid to help take care of her because she does not have any money except social security. It would be very difficult for us to take care of her and her son and house without the help of Medicaid helping with these exspenses. Please advise! Thank you, Tammy Gilstrap
Bob Mason says
If your mother legally adopted her grandson (I presume he is your biological nephew), then he is her child for legal purposes. Under federal Medicaid rules (which South Carolina would be bound to follow) the house can be transferred to a person’s child under age 21 without jeopardizing Medicaid eligibility. If you talk to a lawyer, have him or her look at 42 USC § 1396p(c)(2)(A)(ii)(I).
I have lived with my fiancé for eight years in South Carolina. He passed away in May from complications of Stage Four Lung Cancer that he was diagnosed with five years ago. In 2013 his will was redone leaving all of his real and personal property to his three brothers. I did not object. His family estate should remain in his family.. My question is,, am I able to keep the gifts/items he bought for me over the past eight years, such as furnishings?
Bob Mason says
I should think so. His will passed whatever he owned at the time of his death. If he had truly made a gift before dying, he did not own the gifted asset at his death. If he in fact made gifts to you over the years, those are your assets. Now PROVING that they were gifts and that he did not own them might be a whole different matter. I hope not.
My inlaws, now in their mid-80s, transferred their Ohio home to my wife and her sisters over ten years ago while retaining a life estate unbeknownst to the new owners. This fact came to light a few years ago. The home and adjoining property are likely worth far less than $100k. The house is my father-in-laws boyhood home and had virtually no basis in it besides the improvements he made over the years. According to the auditor’s webpage they value listed improvements as having initial values totalling $26000 and there are other major improvements not shown on the auditors page such as inside plumbing, basement dug etc that I estimate cost at least $8000 collectively when they were done years ago. There also was a $7000 generator installed in the last three years. Of course they never filed any gift tax forms when they made the deed change.
They are now looking at moving to a continuing care facility and selling the home.
I understand that the daughters and possibly their husbands will have to sign off on the home sale.
Is there anyway the daughters can get out of taking their share of the proceeds (by perhaps redeeding it back to them or revoking any unwanted ownership) and avoiding the capital gains taxes?
If not, based on the inlaws current ages (is it correct to use their current ages), it looks like perhaps 37% of the sales proceeds would be assigned to them. Assuming the property generously sells for $100k, what do the daughters use for basis for determining their long term capital gain, the nominal $34000 improvement value at the time of transfer? or can they include the $7k generator installed later?
Any other suggestions would be appreciated.
Bob Mason says
“My inlaws, now in their mid-80s, transferred their Ohio home to my wife and her sisters over ten years ago while retaining a life estate unbeknownst to the new owners. This fact came to light a few years ago.” How did that happen? Did anyone do a title exam?
You have a lot going on here and probably need to talk to someone in person. I suggest making an appointment with a qualified professional and getting good advice that addresses your many facts and circumstances.
Mark griffith says
I’m in DC,can a life estate be changed by the surving spouse?
the wife in the case is not on the loan or the property and it goes to the oldest child, the children are grown
Mark griffith says
South Carolina not dc
Bob Mason says
You’d need to check with a South Carolina attorney. I’m not a South Carolina attorney, nor am I up on SC law. Sorry.
My 81-year-old mother has 150,00 in cash.
I have a 360,000 home that is mortgaged.
Can I sell her a life estate in my home and not be penalized by Medicare if at some point she needs to go into a retirement home?
I would like to place her money into an account for my brothers and to use for her benefit with the hope that there will be a balance left for us when she dies..
We live in Georgia.
Hello, as we are reading all of this information, we are in the state of VA and very confused at the moment on all of these matters and needing someone’s help. My grandmothers daughter was appointed to own the deed of her house, and durable power of attorney. This was in 2011, my grandmother however was left with a life estate to her residency. Her daughter upon her going into a skilled nursing facility for rehabilitation tried to sell everything she had owned in a auction, rent the house out, and keep her in the nursing home for the remainder of her lifetime although it was not deemed necessary because after rehabilitation she is completely able to take care of herself, and she is competent of making decisions for herself as well. So my grandmother stopped the auction, got the tentants out of her house, and is in an ongoing court battle as we speak about the possessions that were to be auctioned off etc
Our question for you, she is trying to get her daughter to sign the house back over because we now know she is just waiting on her to die and sell the house for money when they are already billionaires. But if she cannot get her to sign her house back over, can grandma change her will and leave her life estate to us grandkids so that it would prevent the sell of the house and so that this house stays within our family. Or is their ANYTHING at all that can be done rather it be court related etc.? We are just trying to make sure that the house stays in the family like it should be, instead of being sold for money etc., by my mother who could care less about anything else. Thanks and sorry for any confusion.
My father has a life estate in a property in Michigan where my husband and I are the remainderman. When he sold us the property we took out a mortgage in my husband and my name only. My father lives in one building on the property and we live in the other. Does he have the right to evict us? He has been taken in by a con man who we are worried might try convince him to do so, further separating us from him and allowing the con artist sole control of his other assets. We are working with the police to stop this person, but so far they have done nothing that rises to a criminal act We don’t want to move as we would have trouble maintaining the mortgage and a new residence.
My dad has a life state on his home in NC (approx worth 140K)with me and my sister as remainders. He is now here with me in NJ at an assisted living facility and will most likely spend the rest of his years here. I was told we could use his $ for upkeep , taxes, and renovations. Is this correct.?We would eventually like to rent it out or sell. Is there a limit on $$ from him for house costs and expenses,etc ? Any suggestions and advise would be helpful
before our marriage in 2002, my husband inherited his grandfather’s farm – while his grandmother had lifetime rights. she passed away about 3 years ago, sadly. my husband and i are considering divorce. is the farm considered separate or marital property?
Anne Boone says
Dear Mr. Mason,
My Mother passed away and left my sister and myself (formerly great supportive sisters) a house on a lake in Michigan. My sister knew of the situation: Joint tenants with full rights of survivorship. My sister was aware of the situation beforehand. My sister had ample time to have Mom change the will to give her money instead of sharing the house with me. I LOVE this place as do many of my extended family members. My sister had previously stated to me that she never intends to live here nor come and “sit on the deck” and visit with our (less sophisticated) cousins now that Mom is gone. Now that Mom IS gone my sister is squeezing me to buy her life estate yet keep her remainderman status. She wants me to not only exhaust the money that Mom left me to pay her off but to take on all of the financial aspects of the house (property taxes, repairs, new roof, lake association fees, home owners insurance) that I would have used the money that Mom left me to make these repairs… AND then she wants to be able to get ‘paid again in the form of fee simple in the instance that I die first. In Michigan, can she sell her life estate to a stranger and can that stranger actually move in and live with me in the house? This is not at all what my Mom intended and furthermore, I don’t ever intend to sell the house. I plan to pass it on to the next generation. It’s not like I am trying to get the whole of the house and then sell it. I never plan to benefit financially from selling the house. My parent’s built the house and I plan to keep it and send it on to the next generation. Help!
WHO IS RESPONSIBLE FOR MAJOR IMPROVEMENTS IN A LIFE RIGHT SITUATION (IN NC) ? FOR INSTANCE, A HOUSE THAT NEEDS A NEW ROOF, OR A NEW FURNACE OR H-VAC SYSTEM..IN OTHER WORDS, ARE THE “REMAINDERMEN” LIABLE FOR ANY PART?
Sherry Worthy says
We have a situation where an individual died in 2000 and left her property to her six grandchildren. However, she also gave her daughter a life estate as long as she chose to live there with a stipulation that if she chose to give up her rights, her son would then have the rights of a life estate. Both the daughter and the son recorded termination of their life estate rights (state of Maine) by the year 2010. In 2015 the property was sold and the proceeds divided among the six grandchildren. My understanding is that the life estates are no longer a consideration because they were terminated but what do the six grandchildren use as basis when they report their portion of the sale. There was no appraisal so does the basic calculation start with the FMV in 2000 when the grandmother died or in 2010 when both life estates were terminated?
I built a house on daughter and son in law land. I have contract that’s says I have life estate there we had a disagreements I moved
I could not afford to pay the rent and make payment on my car or anything else so I lost everything. They will not let me move back in my house. They moved in it. What can I do
Wanda S. says
My parents signed the deed to their home to my husband and I in 2015 with a life estate for both parents. They asked us to move in with them on the day the deed was effective and we have lived with them for about 15 months and there has been some discord so we recently moved back in to our home next door. My question is who is responsible for the taxes, insurance on the house and maintenance on this property. My understanding was that the persons with the life estate were responsible for taxes, insurance and maintenance, etc. Is this correct and once both parents pass away …do we have to live in home for two years or for the remaining 9 months to avoid capital gains? Thank you
Wanda S. says
I also have another question, Since we were invited to live with them how does the 15 months we lived in the home affect the look back period incase of Medicaid? Thank you for your help.
Wanda S. says
sorry forgot to put we live in NC
Mari Thomas says
my mother was placed in a nuring home2 yrs ago. She has decided to transfer her house to my husband until we found out that it would effect her medicaid. we have been advised to do a life estate deed. we are trying to find out at the time of her death will we have to purchase her share of the house are the market value or at what cost? and will this life estate deed effect her medicaid. we are in GA.
I recently purchase property in GA that had been foreclosed on. The property has 2 mobile homes on it, one vacant one occupied. I went to magistrate court and started eviction process for the tenants of the occupied home, (there were no rental/tenant agreements with the bank I purchased it from) The sister of the tenant was the owner of the property, is still alive and states her brother can’t be evicted because of a “life estate” No mention of a life estate is in any documentation I can find on the property. I have a copy of the foreclosure notice from the Attorney for the lien holder, the newspaper where it was listed, the real estates listing, the tax assessors office showing the bank paid the taxes, the security deed and warranty deed from both property owner and bank before and after foreclosure. All documentation states the property and all structures on it at the lime of the lien and any added after are considered the “property”. Can I legally evict him from the property? He has paid taxes on his mobile home but not the property itself, also the property has not been maintained. Thanks for any advice or information in this matter.
I live in Georgia.
My mother left her life estate home 3 years ago after trashing the house and land. She came back once, 2 years ago, and stayed overnight without our knowledge at the time then left and has not returned. She is now 90 years old in a nursing home in another state with no possibility of retutning and has had no contact with me since she left 3 years ago. I realize the house cannot be sold until she passes, but can it be rented if we have another, nicer home for her should she ever, by some miracle, return? During the time she lived there, she did not pay any taxes or insurance.
Hanah Hawkins says
My dad deeded his property to me when he was in the hospital back in 1997. A couple years later he wanted the property deeded back to him, so I ask him if I could include a life estate for me so I could always have the option to live there, and he said yes. So I deeded the property back to my dad and included myself as a life estate.
Would the property go to me after my dad passed if the property is not included in his Will? or would it just continue to give me the right to live there?
Your insight is very helpful, thank you! I’m an only child and my 86 year old divorced mother did a life estate 3 yrs ago, with me as the remainder man, in Georgia. This month she was admitted into a long term care nursing home, and will not be returning to her home. She only has SS income and will need to apply for medicaid. She owns her house and it should sell for 125,000. I am also her POA. I was thinking she would apply for medicaid, and then I would sell the home, and leave money in savings account until after her death. Could you tell me what the numbers would look like if the above worked out, and does this sound like a good plan or would you suggest something different?
The life tenant gave her 3 daughters each a share of the property. One daughter has already had hers surveyed and deeded to her and the life tenant and other two daughters had to sign to approve. Now another daughter is having her part deeded to her. Does the daughter who had the land already deeded off and put in her name have to sign in order for the second daughter to get her piece of land in her name? The life tenant is still alive and has not been forced off the land, she is willing to sign to give the daughter the land now.
Linda middlebrooks says
The lady bird_ deeds. This is my family’s I’m middlebrooks wife. Tove tried contacting me call me 5733449662 thanks
Kay kay says
Love your site and comments! Help please! Mom is 85 and received a life estate in her home in divorce in 2002. Value is $30,000. Has not lived there since 2010. Has apartment in another town close to me. She is in rehab now since August 18, 2016, and cannot walk and expected to go into nursing home on Medicaid. She has no other assets or money except $513 month Social Security. Home has been vacant since 2010, but taxes and maintenance kept current. Can she rent the home to help her for personal things in nursing home? If so, will probate Estate Recovery by Medicaid begin after her death or will rent income have to go to Medicaid and not her while in nursing home? She has no will, but has trust that lawyer set up as HER as first Trustee of trust! Her granddaughter and her husband are named Successor Trustees! Is this trust legal with her, my mom, being Trustee? Can I buy her life estate befor she goes into Medicaid nursing home status at reduced value because of her advanced age and use rental money to help take care of her? Or will Medicaid come after me for money after she dies? She is in good health just can’t walk. I don’t have much money and am disabled and 62 years old and my siblings could help financially but they won’t. Thanking you in advance I appreciate your help. I am a retired court reporter/paralegal. Just confused on what to do. The home goes to her deceased ex-husband’s daughter at moms death and we have no clue where she lives and only met her once. Thanks again! Hope you can read this soon. Happy New Year.
If the house is included in the deed with the land, then what about all the stuff in the house? If there is no will to say otherwise, does the remainder interest inherit everything in and on the property?
Hi I have some concerns involving land and I was hoping you could give me some advice. I reside in Ga and your article seemed knowledgeable on ga laws. This is a family matter and I’m writing on behalf of my mother to try and get an idea of our options in handling this situation. My Mom’s mom has a will dividing several acres between her four children. All three of my mom’s siblings have already received their share of land based on the will. They received it well over 10 years ago. She however did not have her land in her name until January 11th of this year after a quit claim deed was filed. My mom’s brother and his wife have a business on adjoining land to ours. In 2007 her brother came to her wanting to buy some of her land to build a new store, she eventually agreed and he walked the line with her to show her where the property line would be. The land was still in my grandmothers name at the time so after my mom agreed the deal was made. Shortly after this my mom who is disabled was in the hospital for a few months straight. While in the hospital her brother and his wife told my grandmother they needed her to sign a paper at the bank, and they came and picked her up to sign the paper. They had her sign a survivorship deed making my grandmother, uncle, and his wife joint owners of a portion of my mothers inherited property. This was done so that they could legally build their new store well over the property line. They also switched my grandmothers land from commercial to agricultural to avoid having to have a setback. In 2013 my uncle passed away from cancer. My grandmother is 92 years old and may not be here with us much longer. We are 100% positive that she did not know what she was signing. This is such a confusing situation and there is so much more to it. Any information or advise is greatly appreciated.
Is there a law in place protecting a terminal ill person such as cancer buy real estate in say North Carolina, but said person can’t afford the house on their own? they qualified on their own, but honestly I think the loan giving was done in haste. said person who 130,000.00 the payments are 800 to 900 a month and said person only get 2200.00 a month from social security and retirement. how can a lender give a loan to a person in this can of case? said person is 68 and has terminal cancer and the real estate agent knows, and so does the attorney and the underwriter. I think something is wrong, but I can’t do anything about it…. the loan was already done, and the papers signed. thanks
I have a feel that this will bite someone in the back end.
Is there a law in place protecting a terminal ill person such as cancer buy real estate in say North Carolina, but said person can’t afford the house on their own? they qualified on their own, but honestly I think the loan giving was done in haste. said person now owes 130,000.00 the payments are 800 to 900 a month and said person only get 2200.00 a month from social security and retirement. how can a lender give a loan to a person in this kind of case, and there is no other sources of income? The said person is 68 and has terminal cancer and the real estate agent knows, and so does the attorney and the underwriter. I think something is wrong, but I can’t do anything about it…. the loan was already done, and the papers signed. thanks
I have a feel that this will bite someone in the back end. Sorry that is what my gut tells me.
My spouse had my name removed from the deed to our property when I went on Medicaid and was put in a nursing home. She got a life estate right and upon her death deed is to be sent to one of our children. We have 3 living children but the other two were left out. We had a will where the estate was divided 3 ways upon our death but my spouse changed the will without my knowledge. If I survive her, what are my spousal survival rights under NC law? Does the property revert back to me?
My father passed away and my stepmom survives him. He has a life estate that specifies his four children as the remainders for his portion of the home. My stepmom has retained an attorney and they are guessing that that the home is valued at $160k with a $60k mortgage so it has $100k of equity which would give us $50k of interest as remainders when she passed. She is 71 and her lawyer used the IRS life estate interest tables and say our interest is currently only $21k and they now have filed a petition in court for a hearing as the stepmom wants to buyout our entire life estate interest for $25k. Do we have any recourse? As our value would be higher in the future of course and this offer seems low. Her lawyer told me my only option was to offer more for the life estate? Why would I buy something I’m entitled to?
William Poindexter says
We have 7 acres, my wife and I,a house and two double wide mobile homes the house is deeded ,but the double wides are not they are separate from the lots. My question is would it be best to have all the property as one property? We are in our early sixties and have one child he is thirty two, we would like to give ourselves a life estate so he would not lose the property if we were to go to a nursing home.
bob mason says
I don’t think it matters whether they are separate or together.
My grandmother died in 1999 and left a will saying that my grandfather had lifetime rights and upon his death the property was to go to her 2 daughters, my mom and my aunt. Grandfather has since remarried and just passed away. Does his new wife have any chance of taking the property or does the will still stand and how do we go about getting the land in their names?
bob mason says
Very little or no chance.