Is a Life Estate a Good Way to Avoid Probate?
My mother-in-law has been given approximately six months to a year to live and would like to pass the house to my husband, her only child, and avoid probate. Would a life estate deed work in this case, since it won’t affect the Medicaid look-back period?
Yes, a life estate would work well for this. With a life estate the original owner, the “life tenant,” executes a deed to another individual or multiple recipients, the “remaindermen,” while retaining the right to live in the property for the rest of their life. Then upon their death, the houses passes automatically to the remaindermen without passing through probate. The remaindermen just have to record a death certificate at the registry of deeds to effect the ultimate transfer to them.
Life estates also have tax and Medicaid-planning benefits. On the tax side, when the remaindermen inherit full ownership of the house they receive it with a “step-up” in basis, reducing the ultimate capital gains when they sell the property. In terms of Medicaid, the avoidance of probate protects the house from estate recovery in most states, However, the creation of a life estate creates a Medicaid look-back period of five years since it does constitute the transfer of a property interest to the remaindermen. But that would not be a problem in your mother-in-law’s case if she won’t be applying for Medicaid benefits.