The Life Estate Deed

Does It Fit Into Your Estate Planning?

Image of two people, one younger and one older, walking along a path. Captioned: The Life Estate Deed. Does it Fit Into Your Estate Planning?

Have you thought about transferring your home into a co-ownership, so the person you’d like to have your home certainly will have it after you pass away? Whether you want to leave your house to an adult child or children, or to another relative or friend, a life estate might be right for you.

It works like this. Owner A., called the life tenant, can live in the house for life. Then, Owner B. gets the “remainder” of the ownership. So, a deed stating the property goes “to Ann Smith for life, then to Ashley Smith as the remainder” vests Ann with a life estate, and Ashley with the remainder. Ann signs the deed, and has it recorded in the county where the house is. Voilà! The home avoids probate, ownership is transferred into both names, yet Ann has a lifelong place to live on her terms.

Without Ann’s express consent, Ashley may not move in during Ann’s lifetime. Ann is free to make upgrades to the home, or even use it for rental income.

But Ann becomes, in effect, the steward of the property for the future benefit of Ashley. Ann must cover all the bills: utilities, insurance, property taxes and repairs. Ann also gets the applicable tax breaks, and the homestead exemption for a primary residence, in states that offer it.

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What is a Life Estate?

You may know of someone with “life rights” to a property. They are known as life tenants, and the persons involved have the right to occupy and use their property for the rest of their lives. This is known as a life estate. While they enjoy the benefits of the property that any owner would, there are limitations. Life tenants cannot sell or transfer the property, or mortgage the property in their own names. Life estates are usually irrevocable once put into place. They are an estate planning tool that helps avoid probate when the life tenants die. At the life tenant’s death, the beneficiary files the death certificate in the local land office and receives title to the property. A life estate deed avoids the gift tax that would occur if a parent signed over their home to their children during their lifetime. The life tenant does not include their property in their will since the life estate deed establishes the owner of the property.

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