A Lifetime Lease Does Not Equal A Life Estate Under Medicaid

In this case, K.L., a Medicaid applicant, was assessed a penalty period, or period or ineligibility for Medicaid nursing home benefits, of 604 days based upon (1) the failure to obtain fair market value for a life estate owned by K.L. when real estate containing the life estate interest was sold, and (2) a number of transfers of cash assets from K.L.’s bank accounts to her grandson. The Atlantic County Department of Family and Community Development, the county Medicaid office, granted K.L. eligibility for Medicaid benefits but assessed the above-described 604 day penalty based upon the asset transfers. On appeal, an Administrative Law Judge (ALJ) held that (1) K.L. did not actually own a life estate in the real estate and thus, should not have been penalized for the value of life estate at the time the property was sold, and (2) a portion of the assets transferred from K.L.’s bank accounts were used for improvements to the home for K.L.’s benefit and thus should not have been included in assessing the penalty. The ALJ held that the remaining asset transfers were properly considered to be gifts which were correctly included in the penalty imposed by the Medicaid agency.

The Assistant Commissioner for the Division of Medical Assistance and Health Services, the State Medicaid agency, reviewed the record in the case including the initial agency decision and the ALJ’s decision. As a result, the penalty imposed as a result of the alleged failure to obtain fair market value for a life estate owned by K.L. when real estate containing the life estate interest was sold was reversed. The Assistant Commissioner found that K.L. transferred ownership of her home to her grandson many years before. On the same date, K.L. entered into a lifetime lease with her grandson. The lease agreement provided that , K.L. was a tenant on the property with “a lifetime right to exclusively use and occupy the property” and “shall have the absolute right to use and occupy the property during her lifetime.” The lease agreement “shall only expire upon [ K.L.’s] death.”

The property transferred to the grandson was then sold. The county Medicaid office found that the lease created a life estate in the property that was owned by the grandson, as language of a life estate was used in the lease agreement. Accordingly, the office determined the fair market value of the life estate and included that value in the penalty assessment.

The ALJ’s decision found that the lease agreement did not create a life estate and therefore, a penalty should not have been imposed as result of the sale of the property, and the Assistant Commissioner affirmed. The Assistant Commissioner’s holding was as follows:

[A]s noted by the ALJ, a life estate is created by deed, can be freely alienated, and is taxable. N.J.S.A. 46:3-5 and -13. N.J.S.A. 46:3-13 specifically provides that “in the absence of other words in the deed clearly indicating an intention to limit the estate to the life of the grantee, [it is to] be considered as presumptive evidence that the grantor intended thereby to convey an estate in fee simple. . . .” Although the lease agreement contains language attributable to a life estate, neither the deed nor the lease agreement make reference to the other document. The deed itself does not contain any provision granting a life estate to [K.L.] and it contains no restrictions on the ownership, use, or sale of the …  property. Without language to the contrary in the deed, it is presumed that the transfer of the … property was meant to be conveyed to [the grandson] in fee simple. Accordingly, I FIND that the lease agreement in this matter created a lifetime lease in K.L.’s favor, and K.L. did not own a life estate interest in the … property. Therefore, I additionally FIND that the imposition of a transfer penalty related to the sale of the Property by [the grandson] … was inappropriate.

With regard to the cash assets transferred to K.L.’s grandson, the Assistant Commissioner reversed the ALJ, holding that all of the cash assets transferred to the grandson were properly included in assessing the transfer penalty.

The case is annexed here – [gview file=”https://vanarellilaw.com/wp-content/uploads/2023/08/K.L.-v.-DMAHS.pdf”]

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