Life estates

May 1, 2006 6:21 AM

My elderly mother’s assets are nearly all tied up in her house. She needs cash now for expenses and she refuses to consider a reverse mortgage. One of my two siblings recommended establishing a life estate to protect mom’s home for her to live in, while one of us three buys the remainder estate to provide her the cash to live on. The remainder estate is valued at two thirds the appraised value of Mom’s house. Our mother’s will currently reads that her estate will be divided equally three ways on her death, and she is unlikely to change it. Is it possible that the sibling who buys the remainder estate could actually end up with much more of the total estate than the others by receiving a free-and-clear deed to the house upon our mother’s death while having actually paid only a fraction of its cost (the appraised value minus the value of Mother’s life estate and their own one third interest in the cash value left over from the remainder estate?)
posted by hdfische to law & government (3 answers total)

Umm, why don't all three children pitch in equally and buy the remainder estate as tenants-in-common? Then, if you decide to sell or rent it after her death, you just split it three ways after costs?
posted by MrZero at 6:51 AM on May 1, 2006

Oh, and to answer your question, assuming your mom doesn't have many assets besides the house, yes, the purchasing child will get the lion's share of property.

Assume the house is worth $300,000 and Mom has nothing else. If the life estate is worth $100,000, then Buyer will pay $200,000 for the remainder interest in the home. When she dies, the home automatically becomes Buyer's property, and is not considered part of Mom's estate. So buyer gets a $300,000 home for a $200,000 investment. But what about the rest of the estate? Now, Mom has $200,000 in her name. But if she needs cash for expenses, how much will there be left when she passes away? Probably not much. And Buyer will still get a third of that residuary. So if she has $$60,000 left from the purchase when she dies, Buyer will get $20,000 of that from her will. The other two children get $20,000 each, and Buyer gets $120,000 - the $20,000 share of the estate and the $100,000 excess value in the home (not even adding in the appreciation).

Also, if Mom is or was on Medicare or Medicaid, suddenly dumping a bunch of cash on her may disqualify her for current benefits, or be taken by the government to pay for previous benefits.

You should really see an attorney that works in estate planning and elder law. I am not your attorney, and none of this is legal advice.
posted by MrZero at 7:01 AM on May 1, 2006

I second MrZero. See an attorney who specializes in elder law and Medicare & Medicaid. I was in this exact situation and I was the only one of my sibs then in the position to purchase the life estate in my mother's condo. When we found out that the State of Ohio would likely consider the life estate as an "available asset" for Medicaid purposes, I had to buy the remainder interest, so she would at least have cash to spend. But then I paid all of the expenses in connection with the condo for the rest of her life, even after she was in a nursing home, so it wasn't like I got a windfall. Again, see an attorney with expertize in this area - real estate is governed by state law and Medicare & Medicaid are state-specific. While I am an attorney, I am not yours and this isn't legal advice.
posted by redfisch at 3:20 PM on May 1, 2006