Life Estates for Elderly Couples: What Missouri Seniors Should Know
For an elderly couple who owns a home, deciding what will happen to the property during their lifetimes and after they die can be an important part of estate planning. One option that may be considered is a life estate.
A life estate can allow an older homeowner to transfer a future interest in a home to a child or another beneficiary while retaining the right to live in and use the property for the rest of the owner’s life. However, creating a life estate is an important legal decision because it can affect the homeowner’s control of the property, the rights of the future owner, and potential Medicaid planning.
If you are an older couple considering a life estate in Missouri, it is important to understand both its potential benefits and its limitations before transferring an interest in your home.
What Is a Life Estate?
A life estate is an interest in real property that gives one or more individuals the right to possess, occupy, and use the property during their lifetime.
The person who holds the life estate is generally called the life tenant. The person who receives the future ownership interest is called the remainderman.
For example, an elderly couple may want their adult child to eventually receive their home while the couple continues to live there. Depending on their circumstances and the way the deed is structured, a life estate may allow the couple to retain the right to live in the home while giving the child a future interest in the property.
The remainderman generally does not have the right to occupy or use the property while the life estate is in effect. When the life estate terminates, the remainderman’s interest becomes possessory.
Because a life estate creates legally significant property rights, it should be established carefully with the assistance of an experienced estate planning attorney in Missouri.
Potential Benefits of a Life Estate
A life estate can provide several potential benefits for an elderly homeowner, although whether those benefits apply depends on the family’s circumstances and the way the life estate is created.
The Home May Avoid Probate
One potential benefit is that the property may pass to the remainderman without going through probate when the life estate terminates.
For an older couple who wants a particular child or other beneficiary to receive the home, this can provide a relatively direct method of transferring the property.
However, avoiding probate should not be the only consideration when deciding whether a life estate is appropriate. Other estate-planning tools may accomplish similar goals while providing different levels of flexibility and control.
The Elderly Homeowner Can Retain the Right to Live in the Home
A significant reason an older homeowner may consider a life estate is the desire to remain in the family home.
For example, an elderly parent may want to transfer a future interest in the home to a child but continue living there for the remainder of the parent’s life. A properly created life estate can preserve the life tenant’s right to possess and use the property during the life estate.
This can be particularly important for elderly couples who want to remain in their home while planning for what will happen to the property later.
A Life Estate May Be Considered in Medicaid Planning
Life estates are sometimes discussed in connection with Medicaid and long-term-care planning. However, this area of planning is more complicated than simply transferring a home and waiting for a particular period of time.
Medicaid eligibility rules, transfer penalties, exemptions, ownership interests, and estate-recovery rules can affect the consequences of transferring an interest in a home. The applicable rules can also depend on the circumstances of the individual applying for Medicaid.
For that reason, an elderly couple should not create a life estate solely because they believe it will make them eligible for Medicaid. A Missouri elder law attorney should review the family’s circumstances before any transfer is made.
Potential Disadvantages of a Life Estate
Although a life estate can accomplish important estate-planning goals, it also creates limitations that elderly homeowners should understand.
The Remainderman Receives a Present Property Interest
Creating a life estate generally does more than simply state who should inherit the property someday. The remainderman receives a current legal interest in the property.
This means the original owner may no longer have complete control over the property.
Once the life estate has been established, undoing the arrangement may require the cooperation of the remainderman. An elderly homeowner who later changes his or her mind may not be able to simply revoke the arrangement independently.
Selling or Mortgaging the Property May Require Cooperation
A life tenant generally retains the right to use and possess the property, but the life tenant’s ability to make certain decisions affecting the property’s ownership can be limited.
For example, if the elderly homeowner later wants to sell the property or obtain a mortgage, the remainderman may need to participate in the transaction.
This can become an important issue if an elderly homeowner later decides to move to assisted living, a senior community, or a nursing home.
The Remainderman’s Circumstances Can Affect the Property
Because the remainderman has a present ownership interest, circumstances involving that person may have consequences for the property.
For example, the remainderman may have creditors or financial problems. Depending on the circumstances and applicable law, the remainderman’s interest may be exposed to creditor claims.
An elderly homeowner therefore should consider not only who should eventually receive the property but also whether that person’s financial and family circumstances make a life estate appropriate.
Life Estates Require Careful Planning for Elderly Couples
A life estate can be useful in the right circumstances, but it is not simply a way to “give the house away” while maintaining complete control.
Before creating a life estate, an elderly couple should consider:
Who should ultimately receive the home?
Does the couple want to remain in the home for the rest of their lives?
What happens if one spouse dies before the other?
What happens if the couple later moves to assisted living or a nursing home?
Could either spouse need Medicaid to pay for long-term care?
Could the future owner have creditor, divorce, or financial issues?
Will the couple need to sell, refinance, or otherwise change the property’s ownership later?
Would another estate-planning tool better accomplish the couple’s goals?
These questions are especially important for elderly couples because circumstances can change significantly after a life estate is created.
Is a Life Estate Right for You?
A life estate can be an effective estate-planning tool for some Missouri homeowners, but it is not appropriate for everyone. The decision should take into account the homeowner’s age, health and long-term-care concerns, family circumstances, financial situation, tax considerations, and goals for the property.
An experienced estate planning attorney in Missouri can help an elderly couple understand how a life estate would affect their rights during their lifetimes and what would happen to the property after their deaths. For families concerned about long-term care or Medicaid, it is particularly important to have the estate plan reviewed before transferring an interest in the home.
Frequently Asked Questions About Life Estates for Elderly Couples
1. What is a life estate for an elderly homeowner?
A life estate gives an individual, known as the life tenant, the right to possess and use a home during the life estate while another person, known as the remainderman, holds a future ownership interest. It can allow an elderly homeowner to continue living in the home while planning for another person to receive the property when the life estate ends.
2. Can an elderly couple create a life estate for their home?
Potentially, yes. A married couple may be able to structure a life estate so that they retain certain rights to the property while naming a child or another person as the remainderman. The deed and estate plan need to be carefully drafted to address what happens when one spouse dies and when the life estate ultimately terminates.
3. Can a life estate affect Medicaid eligibility?
Yes. Transferring an interest in a home can affect Medicaid eligibility and may have consequences under Medicaid’s transfer and long-term-care rules. A life estate should not be created based on the assumption that it will automatically protect the home or make someone eligible for Medicaid. Anyone considering a transfer for Medicaid planning should consult with an experienced Missouri elder law attorney before making the transfer.
4. Can a life tenant sell the home?
A life tenant generally cannot treat the property as though they have complete ownership because the remainderman has a present legal interest. Selling or otherwise changing ownership of the property may therefore require the remainderman’s participation. This loss of flexibility is an important consideration before creating a life estate.
Talk With a Missouri Estate Planning Attorney Before Creating a Life Estate
For an elderly couple, a life estate may offer a way to plan for the future of a home while preserving the right to live there. But because a life estate gives the remainderman a present property interest, it can also limit the homeowner’s future flexibility.
Before transferring an interest in your home, discuss your goals and circumstances with one of our experienced estate planning attorneys in St. Charles. Careful planning can help you understand whether a life estate—or another estate-planning strategy—best fits your family’s needs.
Contact Beck, Lenox & Stolzer Estate Planning & Elder Law, LLC for all of your estate planning needs by booking a call: https://beckelderlaw.com/book-a-call/
Reference: Quicken Loans (Aug. 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”