ARTICLE 9

 

SECTION 9

 


DEEDS OF TRUST, MORTGAGES, LIFE ESTATES

 

 

1.        GENERAL

 

This section provides procedures for determining Medi-Cal eligibility regarding Deeds of Trust, Mortgages and Life Estates.

 

 

2.        DEEDS OF TRUST, MORTGAGES, PROMISSORY NOTES

 

A.       Real Property

 

Mortgages, notes, and deeds of trust which can be sold are considered real property when they are acquired from the sale of real property that was owned by the applicant/beneficiary, and are secured by real property.

 

B.       Personal Property

 

Mortgages, notes, and deeds of trust acquired in any other manner, other than from the sale of real property, are considered personal property.

 

C.       Property Reserve

 

Mortgages, notes, and deeds of trust that are considered real property are subject to all the requirements of other real property as described in MPG Article 9, Section 5.

 

Those considered personal property are included in the property reserve.

 

 

 

 

MEM 50441

DHS

Clarification

 

 

 

 

 

 

 

 

MEM 50441

 

D.       Verification

 

The value of deeds of trusts, notes, and mortgages must be verified prior to granting, as follows:

 

1)      Viewing documents which state a description of the item; and

 

2)      One of the following:

 

a)        Viewing the documents from the lender which identify the principal amount remaining on the note; or

 

b)        Viewing an appraisal from a party that is qualified to appraise mortgages and notes; or

 

 

MEM 50167

 

c)        Making a telephone contact with a recognized broker who buys, sells, or appraises mortgages and notes.

 

 

E.       Market Value Determination

 

The market value of all mortgages and notes will be the principal amount remaining on the note unless the applicant/beneficiary provides a lower appraised value from a party qualified to appraise mortgages, notes, and deeds. Qualified parties include:

 

1)      Banks

2)      Savings and loan associations

3)      Credit unions

4)      Licensed loan or mortgage brokers

 

 

MEM

Procedure 9G

 

F.       Appraisals of Mortgages and Notes

 

If the applicant/beneficiary states the value is lower than the principal remaining on the note, he/she must provide an appraisal. An appraisal is a written and unbiased estimate or opinion of the value of the note based on factual data. Such data may include the terms of the instrument, the location of the property used to secure the note, the current unpaid balance on the note, and other relevant factors.

 

 

A single statement by the appraiser that "a reasonable person would not buy this note" or "this note is not readily salable in the open market" is not an acceptable appraisal value. However, if after a minimum of three attempts, documented by written statements from the appraisers as described above, an applicant/beneficiary cannot obtain an appraised value, the individual will have demonstrated a good faith effort to obtain the appraisal. In this case the note is considered to have a current market value of $0.

 

 

At each annual redetermination, the County will consider the principal amount remaining on the note as the market value unless the applicant/beneficiary provides an appraisal of the note's current market value or three letters from appraisers stating that the note has no value as outlined above.

 

 

G.       Proceeds

 

Proceeds from mortgages and notes will be considered as follows:

 

1)      The principal portion of the payment will be treated as property.

 

 


2)      New footer: 2/97, Ltr 375The interest portion of the payment will be unearned income and will be included in determining the share of cost.

 


 

3.        LIFE ESTATES

 

A life estate is an interest in real or personal property whose duration is limited to the life of the person holding it, or the lives of one or more other designated persons. Generally, a life estate entitles the owner of the life estate to possess, use, and obtain profits from the property as long as he/she lives. Actual ownership of the property is passed to another individual. A purchaser of the property would have to buy the property subject to the life estate, unless the life estate was also sold. A life estate interest in real property is considered real property and a life estate interest in personal property is considered personal property.

 

 

MEM

Procedure 9A

 

A life estate is a legal arrangement which may be created by any method of voluntary transfer of ownership permitted by law, for example deed or testamentary will.

 

Life estates held by Medi-Cal clients are often exempt as the principal residency. In many cases the applicant/owner of the property will grant a remainder (future) interest in his/her property to another individual(s) and reserve a life estate interest for him/herself. Frequently a life estate is created upon the death of one spouse from his/her separate property. The deceased spouse bequeaths the ownership of the property to a son or daughter but grants the surviving spouse a life estate interest on the property so that the surviving spouse may continue to live in the property for the remainder of his/her life.

 

 

Generally a life estate guarantees the life tenant/beneficiary the right to make full use of the property for as long as he/she lives and the right to income (if any) earned from the property. Some life estates may be restricted, however. Some may require the life estate owner to actually reside on the property and may not allow the property to be rented. Some entitle the remainderman to any and all income from the property. Some also require the remainderman to pay part or all of the maintenance, taxes or other expenses related to the property rather than the life tenant. The document granting the life estate should reflect any restrictions, if they exist, and must be viewed by the ET.

 

Although life estates, in the strict legal definition, refer only to estates in real property, common usage of the term also refers to interest in personal property based on the life of the life tenant or some other person(s). For example, a brother could put certificates of deposit into life estate for a sister so that she may receive the interest income for the rest of her life, with the actual certificates of deposit reverting to the brother's children upon the death of the sister.

 

 

A.       Definitions

 

Life Estate An interest in real or personal property whose duration is limited to the lifetime of a person holding it, or to the lifetime of one or more other designated persons. It is also not essential that the words "life estate" be used when a life estate is created. Other phrases commonly used are:

 

 

1)      "To person A for the term of his/her life,"

 

2)      "Person A reserves the possession or use of the property for the term of person A's lifetime,"

 

3)      "To person A for the life of person x," or

 

4)      "To person A, but on person A's death to go to person B and his/her heirs."

Life Tenant/Beneficiary The person that holds a life estate interest. The life tenant/beneficiary need not be the same person as the grantor.

 

Grantor/Trustor The person who owns property and gives a life estate to a life tenant with a future interest to one or more remainderman. The grantor may reserve a life estate interest for someone other than him/herself.

 

 

Remainderman The person(s) who owns the property subject to the life estate and who is entitled to the use of the property once the life estate ends (usually upon the death of the life tenant). Remainderman has a remainder interest or future interest (i.e., right to use or right to income) in the property.

 

Revocable A life estate which can be revoked or terminated by its own terms.

 

Irrevocable A life estate which cannot, in any way, be revoked by its own terms.

 

 

B.       Verification

 

Workers must request and obtain a copy of the legal document which created the life estate. This is usually a grant deed.

 

 

C.       When to Calculate Value

 

The value of the life estate must be calculated as part of an eligibility determination when:

 

1)      The life estate is a nonexempt resource; or

 

2)      The nonexempt life estate was transferred and the transfer is determined to be a disqualifying transfer. A determination must be made as to whether adequate consideration was received for the transfer; or

 

 

3)      Nonexempt property was transferred with the retention of life estate. The value of the life estate is needed in order to determine the amount of consideration received for the property transfer.

 

 

D.       The Value of a Life Estate

 

1)      Revocable Life Estate

 

The net market value of a revocable life estate is determined by using the net market value of the property on which the life estate is held if all of the following conditions exist.

 

              The life estate is revocable by someone in the MFBU or the community spouse, and

 

              The MFBU member or the community spouse was the owner of the property when the life estate was established, and

 

              The MFBU member or community spouse is retaining a life estate interest in the property.

 

 

To determine the net market value of a revocable life estate:

 

a)        Determine the current market value of the property (i.e., assessed value or appraised value).

 

b)        Deduct encumbrances of record from the market value to determine the net value of the property.

 

 

2)      In All Other Cases

 

The net market value of the life estate is determined by using the "Life Estate Value Tables." The following are some examples when to use this method.

 

              The life estate is irrevocable.

 

              The MFBU member or community spouse was not the owner of the property when the life estate was established.

 

              The life estate is revocable but not by anyone in the MFBU or the community spouse.

 

 

E.       Using Life Estate Value Factor Tables

 

Appendix 9-9-A lists the life estate value factors. To use these tables, the ET must take the following steps:

 

1)      Determine the current market value according to the method for the type of property (real property, motor vehicle, etc.); and

 

2)      Subtract any encumbrances to determine the net market value; and

 

 

3)      Using the appropriate table, determine the life estate value factor by using the applicant/beneficiary's current age; and

 

 

4)      Multiply the life estate value factor by the net market value.

 

 

NOTE: A lesser value will be used if the applicant or beneficiary provides an appraisal of the life estate with a lesser value, determined by a party qualified to appraise life estates, i.e., a real estate appraiser, bank, savings and loan association, credit union, licensed loan or mortgage broker.

 

 

EXAMPLE: Mrs. Jones is 85 years old and has entered a long-term care facility. She does not intend to return to her home. No family member is living in the home. Her deceased sister had granted Mrs. Jones a life estate interest in the home and Mrs. Jones lived in it prior to entering long-term care. The life estate is not otherwise exempt as a principal residence. The value of her life estate interest, which is now considered other real property and not her principal residence, must be determined for utilization purposes. The net market value of the real property is $20,000. The property is unencumbered.

 

 

Since Mrs. Jones is 85 years old, her life estate value factor is .35359. The value of her life estate is ($20,000 x .35359) = $7,071.80. The value of her life estate interest must be utilized in order for her to have a $6,000 exemption. The net market value in excess of $6,000 (in this example $1,071.80) shall be included in the property reserve.

 

 

F.       Property Transferred Without Adequate Consideration

 

If an applicant transferred property without adequate consideration, a period of ineligibility must be determined. If the applicant/beneficiary retained a life estate interest in the property, the value of a life estate at the time the transfer occurred is determined as follows:

 

1)      Determine the market value (i.e., assessed value or appraised value) at the time of transfer.

 

2)      Deduct all encumbrances of record at the time of the transfer from the market value to determine the net market value of the property.

 

3)      Use the "Life Estate value table" to determine the life estate value factor based on the life tenant's age at the time of transfer.

 

4)      Multiply the life estate value factor by the net value found in 2).

 

 

5)      Subtract the life estate value found in 4) from the net market value of the property in 2). This is the value of property transferred without adequate consideration.

 

 

EXAMPLE: Mr. Johnson, age 83, transferred his nonexempt, second home [other real property (ORP)] to his son one year ago prior to applying for Medi-Cal. Mr. Johnson retained an irrevocable life estate interest in the ORP. In order to compute the value of the property transferred, the value of the life estate interest at the time the property was transferred must be determined. The period of ineligibility can be determined. The assessed value of Mr. Johnson's ORP at the time of transfer was $19,000. Encumbrances of record totaled $4000 at the time of the transfer; therefore, the net market value of the property was $15,000.

 

 

Mr. Johnson was 82 years old when he transferred ownership to his son. The life estate value factor for an 82 year old is .40295. The value of Mr. Johnson's life estate at the time of the transfer was ($15,000 x .40295) = $6,044.25. The value of the life estate is subtracted for the net market value of the ORP at the time of the transfer, to determine the value of the ORP transferred without receipt of adequate consideration ($15,000 - $6,044.15 = $8,955.75). The remaining amount, $8,955.75, is used to determine the period of ineligibility.

 


5183:ART-9.9

P:S. HINKEL:MPG DEEDS OF TRUST, MORTGAGES, LIFE ESTATES

9-9-A

LIFE ESTATE VALUE TABLE

 

 

Age Factor Age Factor Age Factor

 

1 .98988 36 .93460 71 .58914

2 .99017 37 .93026 72 .57261

3 .99008 38 .92567 73 .55571

4 .98981 39 .92083 74 .53862

5 .98938 40 .91571 75 .52149

 

6 .98884 41 .91030 76 .50441

7 .98822 42 .90457 77 .48742

8 .98748 43 .89855 78 .47049

9 .98663 44 .89221 79 .45357

10 .98565 45 .88558 80 .43659

 

11 .98453 46 .87863 81 .41967

12 .98329 47 .87137 82 .40295

13 .98198 48 .86374 83 .38642

14 .98066 49 .85578 84 .36998

15 .97937 50 .84743 85 .35359

 

16 .97815 51 .83674 86 .33764

17 .97700 52 .82969 87 .32262

18 .97590 53 .82028 88 .30859

19 .97480 54 .81054 89 .29526

20 .97365 55 .80046 90 .28221

 

21 .97245 56 .79006 91 .26955

22 .97120 57 .77931 92 .25771

23 .96986 58 .76822 93 .24692

24 .96841 59 .75675 94 .23728

25 .96678 60 .74491 95 .22887

 

26 .96495 61 .73267 96 .22181

27 .96290 62 .72202 97 .21550

28 .96062 63 .70696 98 .21000

29 .95813 64 .69352 99 .20486

30 .95543 65 .67970 100 .19975


 

31 .95254 66 .66551 101 .19532

32 .94942 67 .65098 102 .19054

33 .94608 68 .63610 103 .18437

34 .94250 69 .62086 104 .17856

35 .93868 70 .60522 105 .16962

 

106 .15488

107 .13409

108 .10068


9-9-B

LIFE ESTATE SUMMARY CHART

 

 

Status of Property Transferred

Status of Life Estate

Treatment

Example

Property was Exempt

Life Estate Exempt

Nothing to Count/No Disqualifying Transfer

Real Property Exempt

Principal Residence Transferred and Exempt Life Estate Retained

Property Was Exempt

Life Estate Not Exempt

Value Life Estate/No Disqualifying Transfer

Real Property Exempt

Principal Residence Transferred and Life Estate Retained But Currently No Intent to Return

Property Was Not Exempt

Life Estate Exempt

Potentially Disqualifying Transfer/Value Both the Life Estate and the Property Transferred to Determine Adequate Consideration/Value of Life Estate Not Included in the Property Reserve

Other Real Property Transferred and Life Estate Retained/Became Principal Residence

Property Was Not Exempt

Life Estate Not Exempt

Potentially Disqualifying Transfer/Value Both the Life Estate and the Property Transferred to Determine Adequate Consideration/Value of Life Estate Included in Property Reserve/Utilization

 


9-9-C

SAMPLE: LIFE ESTATE

 

1

2

3

4

5

6

7

8

9

10

11

12

13

 

Grantor 14

 

 

15

Remainderman 16

17

18

19

 

 

20

Description of 21

Property 22

23

24

25

Creation of Life Estate 26

by and for Grantor 27

(Life Tenant/ 28

Beneficiary) 29

 

30

31

32

33

34

35

36

37

38

Recording Requested By

 

 

And When Recorded Mail To:

Attorney at Law

Sacramento, CA 95728

Mail Tax Statement to:

Sacramento, CA 95728

 

The undersigned grantor declares: No taxable Consideration. FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,

 

 

[ NAME OF GRANTOR ]

 

 

hereby remise, release, and forever quitclaim to (REMAINDERMAN #1), (REMAINDERMAN #2), (REMAINDERMAN #3), AND (REMAINDERMAN #4), as tenants in common, all of her right, title and interest in and to the following described real property in the County of Sacramento, State of California:

 

 

Lot in Block , as shown and designated on the map entitled " Subdivision " per map thereof on file in the Office of the Recorder of the County of Sacramento, State of California, in Map Book, Cities and Towns, at page

on

 

Grantor reserves the exclusive possession and the use and

enjoyment in her own right of the rents, issues, and profits of the property described in this deed for the term of her lifetime.

(Signature of Grantor)

 

State of California

County of Sacramento

On July 3, 1995, before me, the

undersigned, a Notary Public

in and for said State, personally

appeared, known to me to be the

person whose name is subscribed to

within the instrument and acknowledged

that she executed the same.