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A life estate is often created by an older parent when they sign over the house to their adult children but stipulate that the parent can remain in the house until they pass away.

In some estate planning cases, this is the easiest and most advantageous way to transfer property. The resident is called the Life Tenant and the beneficiary is the Remainder Owner. One of the most daunting threats to elderly people is the risk an extended care need.

It can decimate savings and anything that a person would have wanted to leave to their children. In the case of a home, there is an easy way around this problem. The deed of the house can be transferred to the children while the parent is still healthy, and the parent can be designated as the Life Tenant.

This means that the elderly person will have full use of the home until the day she or she dies, and you can also have joint life tenants for married couples. While Medicaid programs will permit a person to keep their primary residence while alive, in most states the Medicaid program will come back and put a lien on the house for anything they are owed after the person has died.

If the home was transferred to the children at least 5 years before the parent had to apply for Medicaid, then Medicaid has no claim to the house. If it is less than five years, it falls within the Medicaid “look-back” period, and it will be included. The children in this case are legally designated as the Remainder Owner(s).

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