A life estate deed is one of the most commonly used — and most commonly misunderstood — Medicaid planning tools in Pennsylvania. It gives one person (the life tenant) the right to use and occupy property for their lifetime, with ownership automatically passing to the remainderman at death. No probate. No executor involvement. The transfer happens by operation of law.
The primary appeal is Medicaid asset protection for the home. Once the life estate is created and the 5-year lookback period passes, the home is no longer a countable asset for Medicaid eligibility — and because the life tenant retained the right to live there, they haven't "given away" their housing. After the life tenant dies, the property passes directly to the remainderman without going through probate or being subject to the PA Estate Recovery Program's claim against the probate estate.
Creating a life estate deed is a transfer for Medicaid purposes. The value of the remainder interest (calculated using IRS actuarial tables based on the life tenant's age at the time of transfer) is treated as a gift. If the life tenant applies for Medicaid within 5 years of the transfer, that remainder value triggers a penalty period during which Medicaid will not pay for nursing home care.
Example: A 75-year-old parent transfers a home worth $400,000, retaining a life estate. Under the IRS actuarial tables, the remainder interest for a 75-year-old is approximately 60% of the property value. The "gift" is roughly $240,000. If the parent applies for Medicaid within 5 years, DHS divides $240,000 by the daily penalty divisor ($421.20 in 2026) — creating a penalty of approximately 570 days (nearly 19 months) during which the family must pay privately for nursing home care.
This is why timing matters. A life estate deed executed at age 70 protects the home if the parent doesn't need Medicaid until age 76. A life estate deed executed at age 82 when the parent is already showing cognitive decline is probably too late — and may create a penalty without any benefit.
⚠ The "We Need to Sell the House" Trap
This is the scenario that catches families off guard: Mom recorded a life estate deed five years ago. The lookback has passed. She's now in a nursing home on Medicaid. The family wants to sell the house — maybe to pay for additional care, maybe because it's sitting empty. They can't sell it without Mom's cooperation, because the life tenant must join in the deed. But here's the real problem: if the house is sold, the life tenant's share of the proceeds (the actuarial value of the life estate) becomes a countable Medicaid asset. Mom may lose Medicaid eligibility, and the family may need to spend down the life estate proceeds on nursing care before Medicaid resumes.
The whole point of the life estate was to protect the home — but that protection depends on the life tenant continuing to hold the life estate until death. Selling the house defeats the plan. This must be discussed before the deed is recorded, not after Mom is in the nursing home.
Life estate deeds have a significant tax advantage over outright gifts — but only if the life tenant dies while still holding the life estate:
This is another reason selling the house during the life tenant's lifetime is almost always a bad idea from both a Medicaid and tax perspective.
For Pennsylvania inheritance tax purposes, the creation of a life estate deed is treated as a transfer. The remainder interest is taxed at the time of transfer based on the actuarial value — potentially at a lower dollar amount than if the full property value were taxed at death. However, if the life tenant dies within one year of creating the life estate, the full property value may be included in the taxable estate.
Life estate deeds are not the only option — and they're not always the best one:
The Bottom Line
Life estate deeds are a powerful tool when used correctly — and a trap when used without understanding the implications. The deed must be recorded at least 5 years before Medicaid is needed. The family must understand that selling the house during the life tenant's lifetime defeats both the Medicaid protection and the tax benefit. And the family must have a plan for what happens if the life tenant needs to move to a nursing home while still holding the life estate. We walk through all of these scenarios before recommending a life estate deed.
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