Authored by: Olivia R. Holcombe-Volke,
Esq., 443-393-7696,
olivia@elvilleassociates.com
In this final posting of my three-part coverage of life estate deeds, I will address the form of life estate deed that is “without powers.” A life estate deed “without powers” means that the life estate tenant cannot sell, mortgage, assign, or otherwise encumber the property without the consent of the remaindermen. However, just as with a life estate deed with powers, during the lifetime of the life estate tenant, the use, possession, and ownership interest of the property doesn’t change, and at the death of the life estate tenant, the remaindermen simply file a death certificate with Land Records, and the property becomes owned by the remaindermen. And, as with a life estate deed with powers, the property held as a life estate without powers is also includible in the life estate tenant’s estate at death, such that the remaindermen get a step-up in basis for capital gains purposes. The pivotal distinction between the two types of life estate deeds, and the tradeoff for sacrificing the power to sell, mortgage, assign, or otherwise encumber the property, is that a life estate deed without powers is only subject to Medical Assistance scrutiny in the first five years following the date of the deed (during which time it is considered a gift that is subject to penalty). Five years after the date of a life estate deed without powers, the property is no longer considered an available asset of the life estate tenant, for Medical Assistance purposes.
A life estate deed is one of several options for use in avoiding probate. It is not the only option, nor is it always the best option, depending on the circumstances of one’s assets, beneficiaries, and goals. When choosing to utilize a life estate deed, the next question of most importance is whether to use one with or without powers, a decision that will primarily rely on the likelihood of the life estate tenant needing Medical Assistance (Medicaid) at some point. As with all decisions regarding one’s estate plan, the best decision is one made in consultation with an experienced estate planning attorney.