Life Estate Deed and
Avoiding Probate and Estate Recovery
Estate recovery is a process by which an individual’s assets, after their death, may be claimed to reimburse MassHealth and the State of Massachusetts for medical services that were provided by public health programs, such as MassHealth/Medicaid.
Without a Life Estate Deed, MassHealth can place a lien on the decedent’s property, seeking reimbursement for their services.
With a Life Estate Deed, any MassHealth lien placed on the property is automatically terminated.
Uses and Restrictions of Life Estate Property
The complete protection from estate recovery allows the owner to maintain some control over his property. For his lifetime, he can use, occupy, and enjoy the property. The owner remains responsible for maintenance and any expenses, including taxes and insurance, unless he enters a nursing home (at which time his beneficiaries will be responsible for the property’s maintenance).
In addition, the owner can exclude the beneficiaries from using or enjoying the property while he is still alive.
If the property in the Life Estate Deed is real estate and the owner rented the property, he could collect 100% of the rent proceeds during his life time. However, property that is part of a Life Estate Deed could not be sold, mortgaged or refinanced by the owner without consent from the beneficiaries, as these types of actions would affect their future ownership.
Disadvantages to Life Estate Deeds
A Life Estate Deed is not for everyone. Care should be exercised when planning with life estates.
There are often unfavorable tax consequences when the home is sold during the life tenant’s lifetime. Significant capital gains taxes may be owed by the other owners when sold during the life of the life tenant. Additionally, the ownership interest granted to the future beneficiaries may be at risk to the creditors of the new co-owners. Imagine your child filing for bankruptcy or divorce while having this interest in your home.