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Court Addresses Calulation of Life Estate Interest

A New York Probate Lawyer said the Incapacitated Person is 95 years of age, having been born on December 8, 1914. On March 1, 2004, he transferred his fee ownership interest in the Glen Head, New York real property in which he resided to his daughter, while retaining a life estate in same. Based upon the date of the transfer, this gift is beyond any applicable look-back period for purposes of determining Medicaid eligibility pursuant to the Deficit Reduction Act of 2005.

A New York Will Lawyer said the parties concede that it was the intention of the Incapacitated Person, with the consent of two of his grandsons (as heirs-at-law of the daughter), for the Incapacitated Person to remain in the real property for the balance of his lifetime. However, when his funds dwindled, his needs increased, and a third grandchild (who had declared bankruptcy) declined to authorize a reverse mortgage on such real property, the Guardians were left with no other option but to permanently relocate the Incapacitated Person to a skilled nursing facility. Thankfully, he has acclimated well despite his advanced age and severe dementia.
Following the relocation of the Incapacitated Person, the Guardian for the Property Management and the Co-Executors of the Estate of the daughter entered into a Contract of Sale to extinguish the life estate interest of the Incapacitated Person and to sell the real property to third parties for the price of $520,000.00. Based on the written appraisals of a New York State Certified Residential Real Estate Appraiser, spanning a period of NINE (9) MONTHS, the selling price is approximately $20,000.00 above the appraised market value.

A New York CIty Probate Lawyer said that the Court is now faced with two issues-namely, the calculated value of the life estate interest of the Incapacitated Person in the subject real property, and the extent of his responsibility for necessary closing expenses.

The Court has been advised that an application for institutional Medicaid benefits for the Incapacitated Person was recently approved by the NASSAU COUNTY DEPARTMENT OF SOCIAL SERVICES (NCDSS). The Court notes that such entity (as the district of financial responsibility for Medicaid benefits) has historically calculated of the value of a life estate interest based upon the life estate and remainder interest table promulgated by the Department of Health and Human Services Health Care Financing Administration (the H.C.F.A. table). While districts may, but are not required, to use this table in calculating the value of life estates and remainder interests, the utilization of this table has been approved by the Appellate Division First Department when valuing a life estate interest.

Manhattan Probate Lawyers said that notwithstanding the position of the NCDSS and the relevant case law, the Respondent argues that Article 4 of the R.P.A.P.L. should be applied to value the life estate of the Incapacitated Person. The Respondent also objects to the H.C.F.A. table calculation and instead suggests utilizing I.R.S. tables to value the life estate interest of the Incapacitated Person. Under the latter calculation, the Incapacitated Person would receive .09259 of the sales proceeds or $48,146.80. Counsel for the Respondent concludes that for a 95 year old person who is well past his life expectancy, this value is more equitable to both the remainder men and the life estate, and characterizes the use of the H.C.F.A. table as absurd and a true miscarriage of justice. It appears that counsel seek only to minimize the assets to be received by the Incapacitated Person as a Medicaid recipient-regardless of whether his future Medicaid eligibility would be jeopardized as a result. Neither party suggests any resolution should the institutional benefits of the Incapacitated Person be interrupted based upon what would be construed by Medicaid as a partially uncompensated transfer.

As stated hereinabove, the Incapacitated Person gifted a remainder interest in his real property to his daughter in 2004, presumably with the intention of protecting the asset upon his passing. Sadly, the daughter predeceased her father, leaving three surviving grandchildren to vie for their respective shares of the remainder value. The Court has not been apprised of any financial contributions made by such grandchildren towards the real property in which their grandfather resided. Nor has the Court been made aware of any information that would evidence the intention of the Incapacitated Person to subjugate his needs to the competing wants of his grandchildren. While their secondary interests as heirs-at-law may be statutorily legitimate, the Court must first and foremost guard against any transactions that may negatively impact the eligibility of the Incapacitated Person to receive Medicaid benefits and to remain at an appropriate skilled nursing facility. Thus, the Court will follow the H.C.F.A. table to calculate the value of the subject life estate.

The second issue to be addressed concerns the apportionment of closing costs, including real estate brokerage commissions, between the life tenant and the remainder men. The NCDSS and the NEW YORK STATE DEPARTMENT OF HEALTH have taken the position that any diminution of the gross value of the life estate will trigger an automatic penalty period. When pressed for the authority to support such position, the Court’s attention has been directed to 96 ADM-8 which states that social services districts must use a reasonable method of calculating the value of a life estate, based on the current fair market value of the property and the age of the person. Because the regulation contains no express or explicit offset for closing costs, the NCDSS argues that no additional costs can be imposed. The Court disagrees with this interpretation where the H.C.F.A. value is utilized in lieu of an alternate calculation. The section of the regulation cited by the NCDSS simply requires that fair market value be received by the life estate holder. The regulation continues if an A/R possessing a life estate sells the life estate interest, the proceeds of this liquidation is a countable resources for purposes of the A/R’s MA eligibility.

Nowhere in the regulation does it state that after such fair market value is received, the Court is prohibited from awarding fees from such amount. Nowhere in the regulation does it state that a life tenant is absolved of his or her responsibility for the pro rata portion of necessary closing costs. Instead, the NCDSS focuses solely upon the omission of the qualifier net before the word proceeds to justify its objection to the payment of any costs from the gross value received for the life estate interest.

But upon closer scrutiny, the regulation does allow for the offset of certain mandatory expenses of the life estate holder such as taxes and maintenance, which are deemed to be allowable deductions from gross rental proceeds. Moreover, for the better part of a century, case law has been consistent regarding both the benefits and the duties of a life tenant. While the life estate holder has the right to use and occupy the premises until the extinguishment of the life estate, this privilege is dovetailed with the absolute responsibility of the payment of necessary carrying charges including real estate taxes. Clearly, the non-payment of these obligations by the life tenant may result in an impermissible encumbrance against the real property which would negatively affect the remainder interests.

Finally, the Court views the real estate broker’s commissions to be a necessary expense which essentially enables the life tenant herein to convert the real property from an intangible ownership interest to an available resource for Medicaid purposes. As it is the custom and practice of this Court to approve real estate brokers’ commissions in the maximum amount of FOUR (4%) PERCENT of the purchase price, the Court will permit the Guardian for the Property Management to pay the maximum cumulative sum of $4,760.50 from the funds of the Incapacitated Person to the real estate brokers involved and retained by the Estate of the daughter, such sum representing .22887 of a FOUR (4%) PERCENT commission (to wit: $20,800.00).

For the NCDSS to demand that the Incapacitated Person receive the gross proceeds of the life estate without diminution for that which he would otherwise have been responsible as a life tenant is to create an unjustifiable windfall and to impose an unfair burden upon the remainder interest to shoulder the entire administrative cost of the sale while only realizing a portion of the total proceeds.

Thus, the Court will permit the Guardian for the Property Management of the Incapacitated Person to pay his proportionate share of any required transfer tax, any statutorily imposed closing costs, and the broker’s commission (in the maximum cumulative amount of $4,760.50 as stated hereinabove). The Guardian for the Property Management shall also be permitted to pay the full amount of any outstanding real estate taxes due on the premises through the extinguishment of his life interest. Conversely, the Incapacitated Person shall be entitled to the full amount of any closing adjustments in favor of the Sellers or responsible for the full amount of any closing adjustments in favor of the Purchasers which would ordinarily be the responsibility of the life tenant, including but not limited to any existing fuel credit, and any credit for real estate taxes paid by the Sellers at closing. In this way, the rights and obligations of the Incapacitated Person as life tenant are neither amplified nor lessened, and cause no harm to those entitled to the remainder interest in the subject real property.

On motion of the Guardian for the Property Management it is ordered that the life estate interest of the Incapacitated Person in the premises located at Glen Head, New York be and hereby is extinguished conditioned upon the Guardian for the Property Management receiving at closing the total sum of $119,012.40 on behalf of the Incapacitated Person, representing a .22887 interest in the subject real property calculated pursuant to the H.C.F.A. table and based upon the age of 95 years and a fair market value purchase price of $520,000.00; the said Guardian is hereby authorized to execute such documents as are necessary to effectuate the extinguishment of the life estate interest of the Incapacitated Person in and to the subject premises in accordance herewith including the execution of a Deed to the Purchasers, if required.

The Estate of the daughter (as remainder man), be and it hereby is allowed to convey the subject premises free of any life estate interest of the Incapacitated Person to the Purchasers in accordance with the terms of the Contract of Sale; the Guardian for the Property Management shall file a real property bond in this proceeding in the sum of $120,000.00, to be first approved by a Judge of the Court; from the gross proceeds of sale, the said Guardian and the Respondent Estate of the daughter shall each pay the pro rata portions as set forth hereinabove of the necessary closing costs, title charges, liens and mortgages, and transfer taxes, based upon the respective ownership interests of such parties as calculated hereinabove. In addition, the said Guardian shall be authorized to pay the full amount of all outstanding real estate charges through the termination of the life estate, and the maximum sum of $4,760.50 from the funds of the Incapacitated Person as and for his contribution towards any real estate broker’s commissions due.

The Incapacitated Person shall be entitled to the full amount of any closing adjustments in favor of the Sellers or responsible for the full amount of any closing adjustments in favor of the Purchasers which would ordinarily be the responsibility of the life tenant; and it is further ordered that at or prior to the closing of title, the Guardian for the Property Management shall pay from the funds of the Incapacitated Person the sum of $750.00 to the Court Appointed Real Estate Appraiser; the Guardian for the Property Management shall pay the maximum sum of $13,800.00 from the net proceeds of sale received on behalf of the Incapacitated Person to fund a personal account at the Care Center and it is further ordered that in all other respects the motion is denied.

Proceeds from estates can either help us in times of needs or can cause family feud. If a family member left you an estate and you want to fight your right, you can seek the Nassau County Estate Lawyer. You can also ask for the assistance of the Nassau County Estate Administration Lawyer or the Nassau County Estate Litigation Attorney from Stephen Bilkis and Associates on your estate related legal action.

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