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My 84-year-old brother has dementia. Would his guardian be able to sell the home I co-own with him?

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Dear Harry, 

My 84-year-old brother lives alone. We believe he has dementia and he has had repeated hospitalizations. He refuses to move to a nursing home. Currently the hospital is in the process of getting him assessed for capacity and petitioning a judge to appoint a professional guardian.

I live in another state and have tried to keep my brother at home, but it has reached the point where he has many medical bills that he cannot pay and he cannot afford the help he would need to be able to stay safely at home. He set up a life estate for his home over 10 years ago with me as his remainderman. The intention is for the guardian to find a nursing facility that accepts Medicaid since he has no other assets except a small Social Security check. Will a guardian be able to sell the life estate to pay the creditors? Will the life estate be dissolved?

Dear reader,

Only with your agreement. You and your brother are co-owners of the home. As the so-called “life tenant,” your brother has the right to live in the house for the rest of his life and, if it were rented out, to receive the rental income. However, since you’re a co-owner, any deed conveying the property must be signed by you as well as your brother (or in your brother’s case his guardian or conservator on his behalf).

If the property is not sold and your brother dies before you, you will then become the sole owner. If you were to pass away before your brother, your interest would pass to your estate and your heirs would have to wait to take possession until your brother’s death.

You and the guardian will have the choice of whether to keep or sell the house. If you sell the house, the proceeds will be split between you and your brother. The values of your interest and his are based on your brother’s age and current interest rates. Different state Medicaid agencies use different tables for this purpose, but using IRS tables (available here) and current interest rates, at your brother’s age of 84, you would receive 78% of the proceeds and your brother the remaining 22%. You would have to pay capital-gains taxes on your share. Your brother probably would not have to do so because he can exclude the first $250,000 of gain since the property was his home. Your brother’s share of the proceeds would have to be spent paying down his outstanding bills and, if there’s any money left, the nursing home.

If you were to keep the house, you and the guardian would have to decide how to maintain it. You could rent it out with the net rental income after expenses going to your brother’s nursing home. If you did keep the property, it would belong entirely to you upon your brother’s death. If you sold the property then, you would not have any capital gain on the sale because the property would receive a step-up in basis upon your brother’s death.

The state may or may not have an estate recovery claim against the house to recover its Medicaid expenses on your brother’s behalf. Many states’ estate recovery programs only seek reimbursement from probate property. Others include non-probate property, such as life estates, as well.

An elder law attorney from your brother’s state could advise you on the life estate tables and estate recovery practices of the Medicaid agency.


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