{"id":573,"date":"2019-02-05T10:22:36","date_gmt":"2019-02-05T15:22:36","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=573"},"modified":"2024-04-25T23:21:06","modified_gmt":"2024-04-26T03:21:06","slug":"what-is-a-life-estate","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/what-is-a-life-estate\/","title":{"rendered":"What is a Life Estate?"},"content":{"rendered":"\n

You may know\nof someone with \u201clife rights\u201d to a property. They are known as life tenants,\nand the persons involved have the right to occupy and use their property for\nthe rest of their lives. This is known as a life estate. While they enjoy the\nbenefits of the property that any owner would, there are limitations. Life\ntenants cannot sell or transfer the property, or mortgage the property in their\nown names. Life estates are usually irrevocable once put into place. They are\nan estate planning tool that helps avoid probate when the life tenants die. At\nthe life tenant\u2019s death, the beneficiary files the death certificate in the\nlocal land office and receives title to the property. A life estate deed avoids\nthe gift tax that would occur if a parent signed over their home to their\nchildren during their lifetime. The life tenant does not include their property\nin their will since the life estate deed establishes the owner of the property.<\/p>\n\n\n\n\n\n\n\n

The\nRemainder Owner<\/strong><\/p>\n\n\n\n

Life estates\nare created in conjunction with a remainder owner \u2013 also known as a\nremainderman or remainder beneficiary\u2013 who receives the property when the life\ntenants pass. The remainder owners are often the children of the life tenants,\nor perhaps the stepchildren of a spouse for whom their parent wanted to\nestablish a life tenancy after their demise. Should the remainder owner\nexperience financial problems while the life tenants still occupy the property,\nthe tenants don\u2019t have to worry about losing their home to the remainder\nowner\u2019s creditors. However, the life tenants also cannot change the remainder\nowner even if they realize that when they die that person is probably going to\nlose the property.<\/p>\n\n\n\n

There is\nanother potential downside. Say the remainder owner is the child of the life\ntenants but dies before his parents. The new remainder owners are his heirs,\nand if he was married and the parents didn\u2019t particularly get along with the\nspouse, that could pose a problem. However, no matter the identity of the\nremainder beneficiary, they must adhere to the life estate agreement.<\/p>\n\n\n\n

If life\ntenants change their mind after establishing the life estate, they can sell the\nproperty if it is done in conjunction with the remainder owner. Should the\nremainder owner not agree to the sale, however, the life estate remains in\neffect. If those considering a life estate deed are troubled by this aspect,\nthere is an alternative to the life estate deed known as the lady bird deed.\n <\/p>\n\n\n\n

The\nLady Bird Deed<\/strong><\/p>\n\n\n\n

A lady bird\ndeed \u2013 which is not permitted in all states \u2013 allows the life tenant to sell\nthe property without involving the remainder beneficiaries. The life tenant\nalso has the right to change the remainder beneficiary under this scenario. As\nwith a standard life estate deed, a property held under a lady bird deed also\navoids probate at the life tenant\u2019s death.<\/p>\n\n\n\n

Life\nTenant Responsibilities <\/strong><\/p>\n\n\n\n

The life\ntenant is responsible for paying the bills connected with the property,\nincluding taxes, homeowner\u2019 insurance, maintenance, and utilities. If something\nin the dwelling needs repairs, it\u2019s the life owner who must have it fixed.<\/p>\n\n\n\n

If there are\ntax breaks associated with the property, it\u2019s the life tenant who receives\nthem, not the remainder owner. If the property is located in a state offering\nhomestead exemptions on a primary residence, the life tenant is eligible.<\/p>\n\n\n\n

Life\nTenant Decisions<\/strong><\/p>\n\n\n\n

Should the\nlife tenant decide that living on the property no longer fits their plans, the\nhouse doesn\u2019t just shift back to the remainder owner. As long as the life\ntenant is still literally alive, it is their property to use, and that includes\nrenting it out to a third party. It\u2019s the life tenant who receives the rental\nincome, but they are also responsible for maintenance and repairs as with any\nrental ownership.<\/p>\n\n\n\n

Medicaid\nand Life Estates <\/strong><\/p>\n\n\n\n

The typical\nlife tenant is an older person who wants to stay in their home. Unfortunately,\nthis is also the age group most likely to enter a nursing home within a few\nyears. Medicaid regulations include a five year \u201clook back\u201d period for any\ntransfer of property from a homeowner to their children or other relatives or\nfriends. If the transfer is made outside of this five-year period, the life\nestate transfer remains in effect even if the life tenant must enter a nursing\nhome. However, if the transfer was made less than 60 months previously, it is\ndisqualified by Medicaid. This disqualification is one of the few circumstances\nin which the life estate is revoked.  The life estate transfer then goes\nback to the original owner, and the property is sold when the owner dies to pay\nMedicaid debts.<\/p>\n\n\n\n

Life\nEstate Alternatives<\/strong><\/p>\n\n\n\n

Life estates\nare useful tools, but they aren\u2019t for everyone. Alternatives to creating a life\nestate include having the owners place the property in a revocable living trust\nand naming the person who would have been the remainderman in a life estate\ndeed as the beneficiary. The property is now owned by the trust, not the\ntenants, but they continue using the property much as before and are free to\nchange the terms of the trust. When the person or persons establishing the\ntrust \u2013 known as the grantors \u2013 die, the trust becomes irrevocable and cannot\nchange. A person can create a life estate in their will. That is often the case\nwhen the house belongs to one spouse and they want to ensure their current\nspouse continues to have use of the property until their death. Upon the death\nof the stepparent, the property goes to the heirs of the home\u2019s late owner.<\/p>\n","protected":false},"excerpt":{"rendered":"

You may know of someone with \u201clife rights\u201d 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, […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[86],"tags":[],"class_list":["post-573","post","type-post","status-publish","format-standard","hentry","category-life-estate"],"yoast_head":"\nWhat is a Life Estate? - Deeds.com<\/title>\n<meta name=\"description\" content=\"You may know of someone with \u201clife rights\u201d 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. 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