Can a Life Estate Be Challenged?

Regular Deeds.com readers know that signing a gift deed to an adult child can have tax drawbacks.

A life estate can be the answer. And it avoids any concerns that the deed will go into probate after death—perhaps to be challenged by others. But sometimes, a relative might come along and challenge the life estate!

Here are some points to consider when creating a strong life estate deed.

A life estate deed ensures you keep your right to your home, yet immediately transfer a future ownership interest to your beneficiary. Find deed forms that meet the legal standards where you are, on Deeds.com.

Head Off Concerns About Undue Influence

With a life estate deed, you convey your property into a co-ownership with someone who will receive your home. After you pass, your home goes to your designated beneficiary, not into probate.

Imagine you want your adult child (let’s call her Sarah) to have your home when you no longer need it. The creation of a life estate is a property transfer. It means that the home will belong to Sarah. If everyone close to you knows about the plan, and sincerely agrees it’s a good one, great! But what if others in your family or close circle are surprised by your plan later, when it’s time for Sarah to receive full ownership? Could they wonder if you were pressed into this decision by Sarah herself?

If they want to challenge the life estate deed, undue influence could be their legal argument.

Say you become highly dependent on Sarah as you get older. It may be completely normal for you to create a life estate deed that benefits Sarah. You, as homeowner, have every right to make this decision.

So, how do you head off some other interested party from challenging your decision? It may be a good idea to (a) create the deed earlier rather than later, when there is plenty of documentation that you are competently managing your financial affairs; and (b) write your intentions in a statement that explains how you are ensuring fairness. Keep the statement with your estate papers and give a copy to your financial planner if you use one. It will, in a sense, represent you after you pass.

The point about getting this done while you are still clearly competent is important in another way, too. It speaks to your mental capacity. For the transfer to be valid, you must have been clear on what you were doing when you signed your life estate deed.

If your mental capacity becomes clouded, the deed can be challenged. So, declare your intent to family and create your deed while you have an obvious grasp of the financial and legal results of transferring an interest in your property.

Be Sure to Properly Execute Your Deed

Your state’s law will set forth a list of formalities. The basics are:

• Signatures and rules for witnessing them.

• Legal language and notarization. The legal instrument grants the property to [your name] for life, then to [your beneficiary’s name] as the remainder.

• Delivery of the deed to the remainder beneficiary.

• Recording in the county where the home is located.

The rules for the substance and process of creating, executing, and recording are critical. If the deed wasn’t properly made, someone may challenge the validity of your deed transfer. If this happens, your local court will review the transfer and determine whether it was acceptable.

What to Know About Deed Theft

A life estate deed transfer is not valid if:

• The owner’s signature was falsified. A forged legal document is not valid. A court will set aside a life estate deed that was forged, and usually determines this through the expert testimony of a professional handwriting expert.

• Fraud or misrepresentation was in play. These arguments can be presented whether the deed was forged or not. If you were asked to fill in a deed form and deceived about its legal effect, the deed transfer could be challenged. The challenger would have to be able to prove the claim to the satisfaction of the court.

The main thing to know is that if your deed transaction was somehow done under false pretenses, it could be challenged in court.

Who May Bring a Challenge Against Your Life Estate?

Generally, someone who takes legal action against your deed transfer must have a real, legal interest in the transfer. They must be directly affected by your decision.

Potential challengers may be:  

• An heir or beneficiary with a good-faith belief that their expected property rights are impacted.

• A co-owner who was not consulted. Consider any party with a stake in the home. If you still have a mortgage balance, get the lender’s written consent before transferring any deed.

• A personal representative who must address a property dispute after you pass.

Just being a family member is not enough. Nor can a person challenge a life estate simply because they disagree with the deed holder’s decision to transfer their property interest. As long as you have the capacity to sign contracts, and you are named as the owner on your current deed, you have the right to transfer your interest in your home to the beneficiary of your choice.

Are you hoping to leave your home to a minor child? In that case, ask your financial pro if a deed transfer into a living trust is the right move for your deed. 

You’ll Keep Your Home—But Now, With Specific Duties

Another thing to consider here. Your beneficiary actually can challenge you if you don’t keep the home in good shape now. (You may rent it out or modify it in ways that don’t diminish its value.)

You must also continue paying the property taxes and the insurance premiums.

Remember that a life estate gives the beneficiary a present interest, even though they don’t take possession while you are alive. In other words, you’ll have a co-owner, who gets a current ownership interest but no right to move in before you pass (although you may invite them to move in earlier).

As long as you live, you have a legal right to occupy your home. No one can take away your life interest. Just know that the new co-owner on your home’s title will get a say in any home-related transactions you might want to carry out. A life estate deed differs from a revocable trust. To reverse the transfer, your beneficiary would need to voluntarily quitclaim ownership.

Wondering if a life estate transfer is a good move? We cannot give legal or financial advice, so do consult your financial and tax professionals, or an estate planning attorney in your state.