subject: What Is A Life Estate And How Does It Affect You? [print this page] This is an article about life estates from the point of view of an estate planning attorney.
A life estate almost always concerns real property. A life estate is usually created by a deed or by a will, and the type of real property usually involved is a residence. There are chiefly three situations where a life estate is used:
One is where you own real property and want the property to be owned by someone else at your death, but you want to possess and use the real property during your lifetime.
In this case, you could use a deed, and in the deed you would convey title to the other person but you would reserve to yourself a life estate. The reservation of life estate language would reserve to you the use, possession and occupation of the premises, the right to keep the rents and profits of the premises and to use the premises in all ways and for all purposes except you would not be able to mortgage the premises without the new owners consent. Also, the reservation of life estate language typically would include language to the effect that you would be obligated to repair and maintain the premises and to pay the town, county and school taxes.
Another situation is where, while you are alive, you want to give to someone the right to possess and use the property during his or her lifetime. In this situation, you would also use a deed, and the deed would convey a life estate and say that, at the other persons death, the property would revert back to you or, if you are not then alive, to your estate. You or your estate will always continue to be the owner of the property but your ownership is subject to the right of someone else to use and possess the real property.
The third situation is where you create a life estate in your will. In this case, your will would convey a life estate in real property to a beneficiary and go on to say what happens at the death of the beneficiary, that is, you would specify who becomes the owner of the real property at the death of the lifetime beneficiary. So as to not keep the administration of your estate open for what could be a long time, the executor of your estate could convey by deed the real property to the ultimate owner, subject to the life estate. This might be, for example, a gift of the real property to one of your children subject to a life estate in another child. Another common situation where this type of life estate might be used is where, in your will, you convey or direct that the real property be conveyed to the ultimate owner, subject to your spouses right to live on the premises and use and possess the premises for your spouses life.
In my experience, people who raise the question of giving a life estate and their residence to their children typically do so to avoid probate, that is, they want to convey their residence to their children but reserve to themselves a life estate. I am generally not in favor of this kind of life estate because there are a number of drawbacks to doing so, including the following:
When you convey title to your children and retain a life estate, you are no longer the owner of the property. You become unable to deal with the property as you wish, for example, you cannot sell it and you cannot mortgage it without the title owner consenting.
You as the life tenant are responsible for maintaining the property and paying the property and school taxes, and maintaining insurance. However, suppose there is a major repair that would be in the nature of an improvement who should pay for it, you or the owner of the property? What if you cant afford to make the repair the property?
Suppose the property will need to be sold and you are fortunate enough to be able to agree with the title owner as to the sale price. How do you share the sale proceeds? Should you as the life tenant get most of the sale proceeds because you are giving up your residence? Or should the title owner get most of the sale proceeds because, after all, they are the owner?
A partition action is not available between a life tenant and the title owner. Partition is a court proceeding that allows co-owners to force a sale of the property and to share the proceeds, or to force one co-owner to buyout the interest of the other co-owner. But, a life tenant and a title owner are not co-owners and are not eligible to maintain a partition action against each other.
If your goal is to avoid probate, there is a preferable way to do so, which involves the use of a living trust, that is, a revocable lifetime trust in which the trust holds title to the real property. You create the trust and you have the right to live on and use the property (you are the trustee and the trust beneficiary), with the trust agreement providing who gets the property at your death, and you have the right to amend or revoke the trust even to the point of getting the property back.
by: Project
welcome to Insurances.net (https://www.insurances.net)
