A life tenant can reside in the life estate.
Certain property ownership is transferred through a deed.
Because property like cars and homes are significant assets, the timing and type of deed can be an important aspect of estate planning.
One option people have for transferring their property is through a life estate.
According to a recent Realty Biz News article titled “What is a Life Estate and How to Use It,” a recorded deed must name the life tenant and designate the property as a life estate for this to be effective.
Who is the life tenant?
The person who holds the life estate.
Although the life tenants will no longer have the authority to transfer or sell the property, they can use the property and reside on the property as long as they choose.
After the death of the life tenant, the remainderman will receive the property.
What are the benefits of this type of deed?
Transferring real estate through probate can be a slow process.
For those who want their heirs to inherit immediately, a life estate can be a good option.
The property will pass from the life tenant to the heir quickly.
If the original owner has liabilities or creditors, then a life estate can remove the property from the ownership of the life tenant.
If you have a profession with a high risk of legal issues or if you have significant debt, you may consider deeding your property in this manner.
Caveat: do not do this without the advice of legal counsel in advance.
A life estate can also be used to name a life tenant who is not the original owner.
If the parents would prefer for an adult child to live in the home for the remainder of his or her life, then this can be done without giving the child ownership of the property.
This can be useful in a variety of family dynamics, especially when an adult child may have special needs.
Caveat: as laws regarding Medicaid and planning for “special needs” are complex and vary by state, do not do this without the advice of legal counsel.
The original owner can reduce estate tax liability by transferring with a life estate.
For those with larger estates, this can be a wise choice.
How exactly does a life estate work?
The creation of a life estate divides the property into the life estate and the remainder interest.
Life tenants can use the property for the duration of their lives.
The remainderman has the right to inherit when the life estate ends.
A life tenant may only sell the property with the permission of the remainderman.
After the death of the life tenant, the remainderman becomes the full owner and can transfer, sell, or use the property as they choose.
Work with an experienced estate planning attorney to determine if a life estate is best for you and your family.
Reference: Realty Biz News (March 20, 2023) “What is a Life Estate and How to Use It”