Should We Use a Life Estate or Nominee Realty Trust to Protect Our Home from Estate Recovery?

 In Long-Term Care Planning, Real Estate
MassHealth estate recovery

Photo by Benjamin R. on Unsplash


We live in Massachusetts. In looking for ways to protect our home against MassHealth recovery laws, I have found two methods most talked about that will also allow for a step-up in cost basis after our passing. The first being placing our home in a deed with life estate and the second being using a nominee trust. Our daughter who will inherit the house would be named on the life estate or the trustee of the nominee trust. If I understand the deed with life estate strategy correctly, after five years MassHealth could not attach our home to recovery expenses paid for our care. Do you happen to know if the nominee trust provides the same five-year look back protection against MassHealth recovery laws?


Both can work, but the life estate probably makes more sense. It is a form of joint ownership. You would deed the house to your daughter reserving a life estate for yourself and your spouse. Upon the death of the survivor of you and your spouse, the house would pass automatically to your daughter without passing through probate and thus avoiding MassHealth estate recovery. The house would also receive a step up in basis allowing your daughter to sell it without incurring taxes on capital gain.

This works in Massachusetts and a lot of other states to avoid Medicaid (MassHealth in Massachusetts) estate recovery, the obligation of states recover the the cost of care for Medicaid beneficiaries from their estates. It works because life estates do not go through probate and many states limit their estate recovery programs to the probate estate of the beneficiary. They may not work in other states that have expanded estate recovery that includes non-probate property.

The main drawback of a life estate is that if you were to sell the house during your lives, a share of the proceeds would pass to your daughter and a share to you based on the ages of yourself and your spouse at the time of the sale. Unlike you, your daughter would not qualify for the capital gains exclusion available to homeowners.

Turning to nominee realty trusts are widely used in Massachusetts, though not elsewhere, and are just as widely misunderstood and misused. The trustees of such trusts manage them on behalf of beneficiaries named on a separate schedule. You could use a nominee realty to trust to shelter your home by naming your daughter as the beneficiary, but this would be tantamount to giving her the property now with the inherent risks if she ran into financial trouble. She also would not receive a step-up in basis upon your deaths, the result being that she would incur potentially substantial capital gains on selling the property. I’ve seen some schedules of beneficiaries attempt to create a life estate, saying something to the effect that the parents are the beneficiaries during their lives and then the children become the beneficiaries, but I have always found this troubling because nominee trusts are meant to be agency agreements with a clear statement of the identity of the principal and the agent.

You can read more about nominee realty trusts and options for protecting the home in my law firm’s legal guides which are available here:

Another option for protecting your home is an irrevocable trust. It’s more complicated than a life estate and each has its advantages and disadvantages. The main advantage of the irrevocable trust over a life estate is that it provides more protection and better tax results if you were to sell the house during your lives. The main disadvantage is that it’s more expensive and complicated to create in the first place.

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