Life Estate Renders Medicaid Applicant Ineligible

Life estates are frequently used by seniors to gift real property to family members because the seniors are assured that the retained life estate secures their use and enjoyment of the property for the remainder of  their life.  These estates, however, present complicated tax and legal issues rarely considered and resolved prior to the gift.  

Life estates often complicate Medicaid eligibility.  See, for example, my prior article, "Entire Value of Property in Which Medicaid Recipient Had Life Estate is Recoverable in Idaho."    In a more recent example, North Dakota's highest court ruled that a Medicaid applicant who had a life estate in property is entitled to the income generated from that property, even though she argued she permanently gifted the income to her son. Bleick v. North Dakota Dept. of Human Services (N.D., No. 20140103, March 24, 2015).

Shirley Bleick transferred property to her son in 1988, reserving a life estate for herself, and then she moved off the property.  In 1992, her son leased a portion of the property to another farmer for $8,200 a year. The rental income went to Ms. Bleick's son. In 2011, Ms. Bleick applied for Medicaid benefits, but the application was denied. The state determined that Ms. Bleick should be receiving a portion of the rental income, so her countable assets exceeded the maximum limit.

Ms. Bleick appealed the state's decision, arguing she gifted the right to the income to her son. The trial court affirmed the state's decision to deny Medicaid benefits, and Ms. Bleick appealed.

The North Dakota Supreme Court affirmed, holding that the income stream from the life estate exceeds the asset limits for Medicaid benefits. According to the court, if Ms. Bleick intended to gift all the income from the property to her son, she could have released the life estate and transferred title to the property. The court ruled that the rental income, if it is viewed as a gift, is an annual gift. One justice dissented, arguing that all the evidence indicates that Ms. Bleick intended to permanently gift the income to her son.

The lesson could not be more clear: consult with an elder law attorney before making gifts in order assure that the consequences of the transaction are fully understood and considered. For more information, see "Six Questions to Ask Before Making Gifts."    

For the full text of this decision, go to: 

http://www.ndcourts.gov/court/opinions/20140103.htm