A life estate means the original owner can remain in their home as a life tenant.
Estate planning is multifaceted.
Although there are many ways to accomplish the transfer of property, not all are equally beneficial for every circumstance.
States have their own laws.
Families have unique dynamics.
People have varying wealth and tax liability.
All of these facts make working with an experienced estate planning attorney essential.
According to a recent Quicken Loans article titled “What Is A Life Estate And What Property Rights Does It Confer?,” an experienced estate planning attorney will be able to provide insight on whether a life estate would be a viable option for you and your loved ones.
What is a life estate?
A life estate is a means of transferring a home.
It involves a few distinct components.
First, there is the life tenant.
The life tenant is the person who owns the property and is gifting it to another person upon the death of the owner.
The person selected to inherit the property is the remainderman.
With a life estate, the remainderman is added to the title of the property and will inherit immediately without having to wait for probate.
While the life tenant is still alive, the tenant retains control of the property.
The only caveat is the tenant must have the consent of the remainderman to either encumber or sell the property.
What are the benefits of a well-designed and executed life estate?
Property Avoids Probate.
The property does not have a delay in ownership transfer.
Rather, the remainderman becomes the immediate heir.
Time, expense, and energy are saved.
Keeps Seniors In Their Homes.
Although the home has shared ownership with the remainderman, the life tenant can have a guaranteed residence as long as he or she lives.
Although these aforementioned benefits are great, a life estate is imperfect.
What are its areas of weakness?
The Property Is Vulnerable To Debts Of Heirs.
When you give someone else property rights, as with a life estate, creditors can make claims on the property for outstanding debts.
This can be problematic if your goal is for the heir to inherit the property.
The Rights of the Heirs To The Property Vest At Creation.
Property rights are vested in the remainderman/heir when the life estate is created.
There are no take-backs without the consent of the remainderman/heir.
For these reasons, one must work with an experienced estate planning attorney and understand the facets of the life estate contract prior to using this estate planning tool.
Reference: Quicken Loans (August 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”