What is a life estate? When it comes to owning a property, there is always the fear that something will happen to the property owner, and the ownership of the property will be in question. So, what should one do to ensure that their loved ones can keep the property in the event of their death? This is where a life estate comes in. What is it, and how does it work?
What Is A Life Estate?
A life estate is a type of real estate ownership that gives the owner the right to use and occupy the property for the duration of their life. After the owner dies, the property passes to the designated beneficiary.
A life estate can be created by will or deed and is often used to avoid probate. A life estate can also be created by a married couple, with the survivor continuing to use the property after the death of the other spouse.
Life estates are a complex area of law and should be reviewed by an attorney before being created.
How does a life estate work?
If you create a life estate, you are giving someone the right to live in your property for as long as they live. The life tenant has the exclusive right to use and occupy the property during their lifetime. After they die, property ownership passes to the remaindermen, who can then do with it as they wish.
A life estate can be created by deed or will. If you create a life estate by deed, you must record the deed with the county recorder’s office. If you create a life estate by will, it becomes effective only after you die.
You can give someone a life estate in your home, but you cannot give them a life estate in your car or other personal property. A life estate example includes a real property, such as land or buildings.
A life estate can be a great way to pass on your property to your heirs while still maintaining control of it during your lifetime. It is important to consult with an attorney before creating a life estate, as there are some potential pitfalls that you will want to avoid.
Creating a life estate
Now that you understand what a life estate is, let’s look at how you can create one.
As mentioned above, a life estate can be created by deed or will.
If you create a life estate by deed, you must record the deed with the county recorder’s office. The deed must contain the following information:
- The names of the parties involved (the grantor and the life tenant)
- A description of the property
- The date on which the life estate takes effect
- The duration of the life estate (usually expressed as “during the lifetime of” followed by the name of the life tenant)
- A statement that after the death of the life tenant, ownership of the property will pass to the remaindermen
- The signature of the grantor
If you create a life estate by will, it becomes effective only after you die. The will must contain the following information:
- The names of the parties involved (the grantor and the life tenant)
- A description of the property
- The date on which the life estate takes effect (usually expressed as “after the death of” followed by the name of the grantor)
- The duration of the life estate (usually expressed as “during the lifetime of” followed by the name of the life tenant)
- A statement that after the death of the life tenant, ownership of the property will pass to the life estate remaindermen
- The signature of the grantor
Creating a life estate is not a complicated process. However, it is important to consult with an attorney before taking any action, as there are some potential pitfalls that you will want to avoid.
Pitfalls to avoid
There are a few life estate problems that you will want to avoid when creating one. First, if you create a life estate by deed, the deed must be recorded with the county recorder’s office. If you fail to do this, the life estate will not be valid.
Second, if you create a life estate by will, it will not take effect until after death. This means that if you change your mind about the life estate, you will not be able to revoke it.
Third, a life estate can have some adverse tax consequences. For example, if you create a life estate in your home, the value of your estate will be reduced by the value of the life estate. This could result in a lower inheritance tax liability for your heirs.
Fourth, a life estate can also negatively affect Medicaid eligibility. If you create a life estate in your home and then later need to go into a nursing home, the value of your home will be considered an asset that can be used to pay for your care.
Finally, can a life estate be sold? Well, if you create a life estate and then later decide that you want to sell the property, you will need to get the consent of the life tenant before doing so.
Conclusion
A life estate is a great way to pass on your property to your heirs while still maintaining control of it during your lifetime. However, it is important to consult with an attorney before creating a life estate, as there are some potential pitfalls that you will want to avoid.