3258. TRANSFERS OF ASSETS FOR LESS THAN FAIR MARKET VALUE
3258.9
Treatment of Certain Kinds of Transfers for Less Than Fair
Market Value.--Certain financial transactions or purchases may
constitute a transfer of assets for less than fair market value. Treat
the following as described.
A.
Life Estates.--Under a life estate, an individual who owns
property transfers ownership of that property to another individual
while retaining, for the rest of his or her life (or the life of another
person), certain rights to that property. Generally, a life estate
entitles the owner of the life estate (the grantor) to possess, use, and
obtain profits from the property as long as he or she lives. However,
actual ownership of the property has passed to another individual.
In a transaction involving a life estate, a transfer of assets is
involved. This transfer is for less than fair market value whenever the
value of the transferred asset is greater than the value of the rights
conferred by the life estate.
In determining whether a penalty is assessed because of a life estate
and how long that penalty should be, compute the value of the asset
transferred and the value of the life estate, and calculate the
difference between the two.
The value of the asset transferred is computed by using the regular
Medicaid rules for determining the value of assets. To calculate the
value of the life estate, use the life estate table below (from POMS SI
01140.120). Determine the value of the life estate by multiplying the
current market value of the property by the life estate factor that
corresponds to the grantor''s age. The value of the life estate is then
subtracted from the value of the asset transferred to determine the
portion of the asset that was transferred for less than fair market
value. Or, if only the value of the transferred portion is needed,
multiply the current market value of the asset by the remainder factor.
EXAMPLE: Mrs. Able, age 65, owns a house with a small farm attached
to it, worth $100,000 in total. She deeds the house and farm
to her son but retains a life estate in the property. Under
the terms of the life estate, Mrs. Able is entitled to live
in the house for the rest of her life and to any produce,
income, etc. generated by the farm. To determine the value
of Mrs. Able''s life estate, the current market value of the
property ($100,000) is multiplied by a life estate factor
corresponding to Mrs. Able''s age in the table (.67970),
resulting in a life estate worth $67,970. The penalty is
assessed for the difference between the value of the asset
transferred ($100,000) and the value of the life estate
($67,790), or a penalty based on $32,030 of assets
transferred for less than fair market value.
Some States allow life estates with powers, wherein the owner of the
property creates a life estate for himself or herself, retaining the
power to sell the property, with a remainder interest to someone else,
e.g., a child. Since the life estate holder retains the power to sell
the property, its value as a resource is its full equity value. In this
situation, the individual has not transferred anything of value, because
he or she can terminate the life estate at any time and restore full
ownership to himself or herself. Instead, the full value of the asset in
question is treated as a countable resource to the individual (assuming,
of course, that it is not an otherwise excluded resource).
LIFE ESTATE AND REMAINDER INTEREST TABLE