{"id":5900,"date":"2024-08-04T21:45:16","date_gmt":"2024-08-05T01:45:16","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=5900"},"modified":"2024-08-04T21:45:20","modified_gmt":"2024-08-05T01:45:20","slug":"understanding-life-estate-deeds-benefits-and-drawbacks","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/understanding-life-estate-deeds-benefits-and-drawbacks\/","title":{"rendered":"Understanding Life Estate Deeds: Benefits and Drawbacks"},"content":{"rendered":"\n
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It\u2019s possible to deed your property into a co-ownership with the person who will receive your home after your life. Perhaps you plan to leave your house to an adult child, or even a friend. A life estate deed<\/em> is one option.<\/p>\n\n\n\n

It keeps you in your home for life. After your life, your home bypasses probate, so your designated beneficiary receives it directly.<\/p>\n\n\n\n

Here, we explore the elements of a life estate deed, how it works, and its potential pros and cons for older adults.<\/p>\n\n\n\n\n\n\n\n

You Can Keep Living in Your Home for the Rest of Your Life.<\/h2>\n\n\n\n

As an older adult, you could decide to age in place. If you create a life estate deed, you\u2019d live in your home just as you do now. You\u2019d be called the life tenant<\/em>. You\u2019ll be bringing a co-owner onto the deed who\u2019ll get the home after you pass on. That designated beneficiary holds what\u2019s known as the remainder<\/em> ownership. Your new deed must say the property goes to [your name] for life<\/em>, then to [your beneficiary\u2019s name] as the remainder<\/em>.<\/p>\n\n\n\n

If multiple people will have life interests or remainder interests, <\/strong><\/em>vesting the deed<\/em><\/strong><\/a>\u00a0the way you want it is crucial.<\/strong><\/em><\/p>\n\n\n\n

You\u2019ll sign the deed with a notary public. Record your new life estate deed in the county where your home exists. (Be prepared to pay a minor fee for the recording service.) Now, your legal ownership change is a matter of public record. This supports your beneficiary\u2019s claim to the home when you have passed.<\/p>\n\n\n\n

You can live in your home as long as you need it. Your beneficiary can\u2019t move in (unless you both want that, and you agree to it).<\/p>\n\n\n\n

You must maintain the home and pay the bills as long as you live in it. You\u2019ll keep enjoying any tax benefits or homestead exemption you now have.<\/p>\n\n\n\n

Let\u2019s note one more attractive feature before we move on. After you pass, say your beneficiary wants to sell. They can \u2014 with a stepped-up tax basis (lowering capital gains taxes).<\/p>\n\n\n\n

Impacts on Your Ownership Rights Can Be Potential Drawbacks.<\/h2>\n\n\n\n
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A life estate does its key work after you\u2019ve passed on. The deed proves your survivor\u2019s ownership status, without having to go through the probate court. As you see, the life estate deed is a useful planning tool.<\/p>\n\n\n\n

Now, what about potential drawbacks?<\/p>\n\n\n\n

States may increase a property\u2019s taxable value if a beneficiary is brought onto the deed. Also, creating a life estate deed rules out a Medicaid application for the following five years.<\/p>\n\n\n\n

What\u2019s more, when you bring a co-owner onto your home\u2019s title, you\u2019ll have to have that person sign off on any major moves you make that impact your home. This is the law\u2019s way of making sure that your home\u2019s future resident\u2019s interest is protected.<\/p>\n\n\n\n

Say down the road you want to sell. As co-owners on the deed, you must agree to sell together. You\u2019ll divide the sale proceeds per the Internal Revenue Service<\/a> rules.<\/p>\n\n\n\n

And while you\u2019ll keep your homeownership rights for life, you won\u2019t have a crystal ball to tell you what your new co-owner will do. If your co-owner faces legal actions, a judgment or claim could be recorded against your now co-owned home.<\/p>\n\n\n\n

Also, what if a younger remainder holder unexpectedly dies while you are alive? Know that you could wind up co-owning your home with your beneficiary\u2019s heirs.<\/p>\n\n\n\n

What Are the Alternatives? Here Are Some Other Deed Options.<\/h2>\n\n\n\n

Other states have similar tools. Ask a family lawyer or real estate lawyer in your state about your choices. Here\u2019s what they could include:<\/p>\n\n\n\n