While the life tenant is still alive, they’re in control of the property in all respects, except they can’t sell or encumber it without the consent of the remainderman. After the life tenant passes, the remainderman inherits the property and avoids probate. Life estates can simplify the estate planning process, so that a homeowner can easily pass property down to the next generation upon death.
Quicken Loans’ recent article entitled, “What Is A Life Estate And What Property Rights Does It Confer?” says that by understanding the features of a life estate and creating one at the right time, you can enjoy these benefits:
Property Avoids Probate. Property held in a life estate transfers ownership to the remainderman, saving everyone time and headaches. It also eliminates the complications that arise when trying to spell out your intentions for your property in a will.
Property No Longer Part Of The Estate. Once your state’s Medicaid look-back period has passed, a property transferred through a life estate won’t count against your eligibility.
Keeps Seniors In Their Homes. Even though a life estate effectively transfers property ownership to the remainderman, the life tenant has guaranteed residency, if desired, for the rest of their life.
While a life estate can be a helpful tool, it does have several drawbacks:
The Property Is Vulnerable To Debts Of Heirs. Because a life estate transfers property rights to a designated heir, the heir’s creditors may have the right to seize inherited assets to cover any outstanding debts. This would contradict the life tenant’s wishes to pass their assets on directly to the heir.
The Heirs’ Rights To The Property Vest At Creation. Once you create a life estate, property rights vest in your heir. You can’t take back those rights without the heir’s consent.
Because you can’t reverse a life estate without the consent of both the life tenant and remainderman, you should understand each facet of the contract before committing to it. Ask an experienced estate planning attorney to help you. A life estate may not be the best tool available in your case. A trust or other estate planning tool may help accomplish your goals with fewer drawbacks.
Reference: Quicken Loans (August 9, 2022) “What Is A Life Estate And What Property Rights Does It Confer?”
