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How Does MassHealth Calculate Life Estates?


Life estates have long been a prime long-term care planning device for protecting the home from MassHealth estate recovery because they’re quite simple to create. MassHealth recently changed its rules in terms of how it measures life estates when they are created or when property held in a life estate is sold.

What is a Life Estate?

A life estate is a form of joint ownership of real estate where ownership interests are divided by time. The so-called “life tenant” has the right to occupy the property during his or her life and to collect any rental income earned from the property. The life tenant also has the obligation of maintaining the property.

The so-called “remaindermen” automatically take control of the property upon the death of the life tenant or the later to die of life tenants. Even though they have an ownership interest, remainderman have no right to enter the property, reside there, or collect rents during the life of the life tenant.

Neither the life tenant nor the remaindermen can sell the property without the cooperation of the other, since both current and future interests must be combined for the sale.

Life estates may be created in a simple deed setting out the various interests of the different parties. Property in a life estate avoids probate and thus also avoids MassHealth estate recovery if the life tenant receives MassHealth benefits. At the same time, the life tenant retains the exclusive right to live in the property—she cannot be evicted by the remaindermen. In addition, when the remaindermen receive the property, they get it with a step-up in basis which usually puts them in a much better tax situation.

Read What is a Life Estate and Why Would You Want One? – Massachusetts for a more detailed explanation.

MassHealth Treatment of Creation or Sale of Life Estates

Two issues with respect to life estates are how they are valued when created or sold. When a life estate is created, the owner—often a parent— conveys an interest in the property to the remaindermen—often one or more children. For purposes of MassHealth eligibility, the creation of a life estate is a transfer of property causing a penalty of a period of ineligibility for benefits. For practical purposes, this often means that the grantor is ineligible for nursing home coverage for the subsequent five years, but the period can be shorter based on the value of the remainder interest.

This valuation issue also comes up if the property is sold during the life tenant’s life. The question is how much of the proceeds should go to the life tenant and how much to the remaindermen.

To determine these valuations, MassHealth uses tables that determine these interests. These tables base the value of the life and remainder interests based on the age of the life tenant, the interest of the life tenant declining as she gets older. Due to rising interest rates, it recently switched from tables provided by the Social Security Administration which stay static no matter current interest rates to ones supplied by the IRS.

The new table, which is an Excel spreadsheet, can be downloaded from this page. The user must then look up the Section 7520 rate which is located here. On this table, the rate for August 2023 is 5.0 percent. Going to the actuarial table, if, for instance, a 70-year-old homeowner creates a life estate for herself and conveying a remainder interest in her home worth $500,000 to her children, she will be deemed to have given them a 53.4% interest, or property with a value of $267,000 while keeping an interest worth $233,000. If the property is sold 10 years later, when the mother is 80 years old, for $600,000, she will receive 31.4% of the proceeds, or $188,400 and her children the balance of $311,600 (assuming, of course, that interest rates remain unchanged).

What About Joint Owners?

The IRS also provides tables for joint life estate holders, whose value is higher given their longer joint life expectancy. The SSA tables did not provide for this nuance.

Related Articles:

What is a Life Estate and Why Would You Want One? – Massachusetts

Life Estate Owners: Beware Solvency of Remaindermen – Massachusetts

Why Most Married Nursing Home Residents Can Get MassHealth Coverage

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