The third full paragraph on page 40 of Medicaid Financial Eligibilty Rules for Nursing Home Care in New York State describes how to calculate the value of a life estate for Medicaid purposes. At the time the book was published, 96 ADM-8, at 20, and Medicaid Reference Guide, at 353, stated that Social Service Districts may, but are not required to, use the life estate and remainder interest table attached to 96 ADM-8 when calculating the value of life estates and remainder interests.
Effective September 26, 2011, a different method must be used when calculating the value of a life estate or a remainder interest for Medicaid purposes. 11 OHIP/ADM-8, at 7; GIS 12 MA/001. The Internal Revenue Service tables must now be used. 11 OHIP/ADM-8, at 7; GIS 12 MA/001.
In order to do the calculation, you must know the age of the life estate holder on the date of the transaction.
STEP ONE
When doing the calculation, the first step is to find the IRS code 7520 interest rate for the appropriate month and year. 11 OHIP/ADM-8, at 7.
The ADM contained a link which was supposed to take you to the 7520 interest rate table. The link in the ADM was http://www.irs.gov/businesses/small/article/0,,id=112482,00.html
Unfortunately, if you use that link, you get the following error message from the IRS website: “We have redesigned the IRS.gov website to make it easier and faster to find the information you need. If you have reached this page by selecting a bookmark that worked previously, it is likely the URL has changed. To navigate to the new redesigned IRS website click on the homepage link. You may also Search the site for specific information. Once you have arrived at the desired page, please update your bookmark.”
To find the 7520 interest rate table, go to www.irs.gov
In the search box, type in: 7520
Click on SEARCH
Click on the link for 7520 interest rates.
You will be taken to a table which shows Section 7520 interest rates for the current year.
If you need the Section 7520 interest rates for a prior year, you will see “For prior years’ rates, please refer to Section 7520 Interest Rates for Prior Years” directly beneath the table for the current year.
However, this link does not work, either.
If you click on the link, it will take you to a list of years. If you click on the year that you need, you will get a message telling you that you will be leaving the IRS website. If you click on LEAVE IRS WEBSITE, you will be taken to a blank page.
Several non-IRS websites contain the Section 7520 rate tables for prior years. To find one, google a search term such as: 7520 Rates 2011.
Once you get to a Section 7520 table that you are able to use, make a note of the interest rate for the month and year that you need.
STEP TWO
11 OHIP/ADM-8, at 7, says that the next step is to find Table S.
11 OHIP/ADM-8, at 7 stated that a direct link could be found at http://www.irs.gov/retirement/article/0,,id=206601,00.html
However, if you try this link, you will get the same error message from the IRS website that is shown in Step One, above.
To find Table S, go to www.irs.gov
In the search box, type in: Section 7520 Actuarial Table
Click on SEARCH
Click on the link for Actuarial Tables.
You will be taken to the Table of Contents for Publication 1457: Annuities, Life Estates & Remainders.
Click on TABLE S, which is in Section 1.
Note that this is an Excel spreadsheet. If you do not have the Excel application on your computer, you might not be able to open this document.
You will see a table with headings Age, Annuity, Life Estate, Remainder and then Age, Annuity, Life Estate and Remainder again. Above those headings, you will see that it says Interest at 0.2 Percent. If you scroll down, it will say Interest at 0.4 Percent above the next table. Keep scrolling down until you find the interest rate that you were told to use in Step One.
When you find the correct interest rate, scroll down until you find the row for the age of the person for whom you are calculating the life estate value.
Use the Life Estate column for that row.
EXAMPLE FROM 11 OHIP/ADM-8, AT 7
Calculate the value of a life estate owned by a 76-year old in July of 2011. The fair market value of the property is $270,000.
Step One: find the IRS Code 7520 interest rate for the appropriate month and year.
For July 2011, it is: 2.4%.
Step Two: Find Table S.
Find the Interest at 2.4% heading.
Find the Life Estate column for a 76-year old: it is 0.21231.
$270,000 x 0.21231 = $57,323.70. That is the value of the 76-year-old’s life estate.