ELDER LAW & ESTATE PLANNING-Pataki Proposal Threatens The Use Of Life Estates

As if the recent Federal Deficit Reduction Act were not enough, Governor Pataki has added insult to injury by introducing a budget for 2006 that will make eligibility for Medicaid even more difficult to obtain for seniors and the disabled.
Governor Pataki proposed a series of measures to help reduce and redistribute the costs and financial burdens of Medicaid. Some of these provisions include the elimination of spousal refusals except when a responsible relative is absent and such relative refuses or fails to provide necessary care and assistance. In addition, the Governor seeks to extend the look back period for all transfers from three to five years. This particular proposal might be moot in light of the five-year look back period that has already been proposed at the federal level. Further, Pataki has proposed to impose a look back period and transfer penalties for community-based Medicaid such as home attendant care. If adopted, the penalty period will begin on the first day that the applicant would receive home care services, but for the penalty imposed. Many of these proposed changes have appeared in budget proposals in previous years, but never became law.
One of the more disturbing additions to this year’s budget is the provision to expand Medicaid’s ability to recover money it paid on behalf of a beneficiary from the individual’s estate. Under current rules, recovery is limited to assets held in an individual’s probate or intestacy estate. According to the proposal, the definition of an estate will be expanded to include, among other things, any interest an individual held as a life tenant at the time of his/her death.
Transferring property subject to a life estate is a common planning device for seniors who are interested in preserving their personal residence in the event of long-term health care expenses. An individual could transfer his home to a family member and retain a life estate, thereby giving him the legal right to remain in the residence during his lifetime. The use of a life estate plan gives much comfort to seniors because no one can take away their rights to the possession, use and control of their home. Further, the retention of a life estate usually results in a shorter penalty period for purposes of Medicaid nursing home eligibility, the elimination of capital gains taxes for the individual’s beneficiaries and the protection of the family residence from Medicaid recovery.
Under the proposed budget, if a Medicaid recipient has retained a life estate in any real property, upon his death, Medicaid will be entitled to recover its expenses (up to the value of the individual’s life estate) from the property. Such a provision will seriously undermine the ability of seniors to preserve their homes using this commonly used technique.
At this time, the budget has merely been proposed, and has not been passed. As with the pending Federal Deficit Reduction Act, we can only hope that such legislation is ultimately not enacted.
Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts and wills. The firm has offices in Forest Hills, Great Neck, and Brooklyn, NY. Mr. Fatoullah has been named a “fellow” of the National Academy of Elder Law Attorneys and is a former member of its Board of Directors. He also serves on the Executive Committee of the Elder Law Section of the New York State Bar Association. Mr. Fatoullah has been Certified as an Elder Law Attorney by the National Elder Law Foundation. Mr. Fatoullah is a co-founder of Senior Umbrella Network of Queens. This article was written with the assistance of Debby Rosenfeld, Esq., a senior staff attorney at the firm. The firm can be reached by calling (718) 261-1700 or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.
*Certified as an elder law attorney by the National Elder Law Foundation.