Kathy L. McNair, Esq.
Recent MassHealth Memo affects calculation of Life Estate Deed Value
Updated: Apr 28
As an elder law attorney, I often recommend the use of Life Estate Deeds to help protect the home from the high cost of nursing home care. In order to protect the home, ideally, the client won’t need Medicaid benefits to pay for nursing home care for at least five years from the date that the life estate deed is established and the client is interested in keeping their home for the rest of his/her life.
Recently MassHealth, the agency that oversees Medicaid benefits in Massachusetts, issued a memo that has an impact on the calculation of the value of a life interest or a remainder interest in property if that property is sold or an interest in the property is transferred during an applicant's lifetime. MassHealth is changing the way it calculates the value to align with the IRS method for calculating the value of the life interest.
Since August 2020, MassHealth has used its own calculation of the life interest which was different from the IRS calculation. Having two different methods for calculating the value of a life interest was confusing. It meant that if a home was sold during the lifetime of the life tenant, the sellers (especially the remaindermen) were required to use one method for calculating capital gains tax due to the IRS and another method of calculation if the life tenant needed nursing home care and needed to apply for MassHealth benefits. This made things confusing. The IRS method for calculating the value of a life interest results in a lower value of the actual life interest and a higher value of the remainder interest. The MassHealth method for calculating the value of the life interest resulted in a higher value for the life interest and a lower value for the remainder interest. MassHealth will now be using the same method as the IRS.
In most circumstances, this is probably good news and overall makes things simpler. If you have already established a life estate deed to protect your home, the change in the method for calculating the value of the life estate won’t affect you, unless you decide to sell your home during your lifetime. If it becomes necessary to sell your house during your lifetime, a smaller percentage of the proceeds will be considered to belong to you when you sell the house.
However, this is not good news for everyone. First, it is going to be confusing for anyone who during the past two years may have sold a life interest or had their children or family members purchase a remainder interest in real estate, relying upon the method of calculating the life interest in place during that time. If a MassHealth application was filed prior to April 2023 and approved, it will likely not be a problem. But, if the MassHealth application will be filed in the future, it may cause a problem and confusion.
In addition, it has a negative impact on one strategy that we have used in certain cases to protect the full interest in real estate. In a few cases, we have recommended that a child or family member consider purchasing a remainder interest in the home. Based on the change in calculating the interest, the value of the remainder interest is going to be significantly higher for the purchaser of the remainder interest. This will make it more expensive for a family member to purchase a remainder interest. Luckily, we still have other strategies to recommend to people to protect their assets from the high cost of long term care. Using life estate deeds is still recommended in certain situations. Each situation requires careful analysis to determine the best way to protect assets for the client based upon each unique situation.
This information can be confusing. Getting the right advice as early as possible is the best way to protect your hard earned assets from the high cost of long term care.
If you are interested in protecting your assets from the high cost of long term care, please take the first step and contact us now to schedule a free consultation. We are here to help guide you and protect your assets. You may contact us by calling our office at 617-489-5900 or schedule a brief free consultation by clicking on this link: https://seniorsolutions.as.me/FreeConsult
Senior Solutions, Attorneys at Law, is an Estate Planning and Elder Law firm, serving the Greater Boston, Massachusetts area, since 2001. We are ready to help you with Medicaid Planning, Estate Planning, Probate, Guardianship & Conservatorships, Special Needs Trusts, and Fiduciary Services.