Quicken Loans’ recent article, “What Is A Life Estate And What Property Rights Does It Confer?” discusses what are the benefits of a life estate.
A life estate is an interest in real property that entitles the life estate owner (sometimes called the “life tenant”) to the right to occupy, possess, or otherwise use the property for the lifetime of one or more individuals (usually the lifetime of the person or persons who hold the life estate interest). A life estate owner has the right to possess and use the property for the duration of the life estate. A “remainderman” has an ownership interest in the real property. However, they have no right to possess or use it until the life estate terminates, typically when the life tenant dies. Beck & Lenox Estate Planning and Elder Law may suggest one of these for an elderly parent who gives or sell her home to a child, but wants to stay there until she passes away or goes into a senior community or nursing home.
- The Property Avoids Probate. Property held in a life estate isn’t required to go through probate but rather transfers ownership to the remainderman. This also eliminates the complications of stating your intentions for your property in a will.
- The Property is no Longer Part of the Estate. Once your state’s Medicaid look-back period is over, a property transferred through a life estate won’t count against your eligibility for the program.
- It Keeps Elders in Their Homes. Even though a life estate effectively transfers property ownership to the remainderman, the life tenant has guaranteed residency, if desired, for the rest of their life.
While life estates are helpful tools, they do have several drawbacks:
- The Property is still Vulnerable to the Debts of the Heirs. Because the life estate transfers property rights to a designated heir, the heir’s creditors may have the right to seize the inherited assets to cover any outstanding debts, contradicting the life tenant’s wishes to pass their assets on directly to the heir.
- The Heirs’ Rights to the Property Vest at Creation. Once you create a life estate, the property rights vest in the heir(s) and can’t be revoked without the heir’s consent.
- The Property Can’t Be Sold or Mortgaged. If a life tenant wants to significantly alter the property, convert it into a rental, or even decide to sell, they must have the remainderman’s permission.
Life estates help elderly homeowners set up a straightforward, legal directive for an heir to inherit property without probate. Life estates also let the owner control the property in most respects. If created in a timely manner, a life estate can even help its creator qualify for Medicaid assistance. However, life estates do have some disadvantages. Ask an experienced estate planning attorney like the attorneys at Beck & Lenox if this is a good move for your situation. Schedule a free phone call with one of the attorneys here.
Reference: Quicken Loans (Aug. 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”