For some early context a Life Estate is the ownership of the land for a person’s life. This land can be passed down from person to person.
When can a life estate be confusing?
Recently I had a family come in who had just lost their dad. Dad was in his 90s, so these kids were in their 60s and 70s.
Dad had made a will, and left his present wife something called a “life estate”. He’d owned his home prior to marrying this wife, he left a life estate in his bank account to his present wife.
The kids were called remaindermen, or remainder interest holders. After the wife passed away the children would be the new owners of the estate.
The questions asked:
- What does this mean for the wife who is currently living?
- What can she do with the property and money?
- What can you do as a remainderman?
This is where life estate opens up a can of worms.
Under a normal will, you can divide up pieces of of your estate: the trees, minerals, water, air, structures on the dirt.
Not only can you divide up the different types of things one can own, but you can also divide up the time period that you own it, present or future.
What a life estate does is give the ownership of the estate to someone else in the future. You retain the right to live and use the property as long as you’re alive.
In short you have given away the future ownership.
In a case where the kids have the future ownership, then they own that remainder interest. With a life estate, the kids do own the property in a sense. Unlike a will, this cannot be changed by the parents in the future.
The Conflicting Dilemma
Essentially, with a life estate you have a situation where one party has a right to use and occupy, or use and enjoy, something for their lifetime while somebody else actually has an ownership interest in the property that they just can’t do anything with because the first person has a right to use it.
- Has the right to occupy and enjoy the estate in their lifetime.
- Can do what they want to the property
- Keeps the rights to the property as long as they are alive.
- Has ownership in the property
- Cannot use the property while Party One is alive
- Has a future interest in the property
What happens when the person who is living there decides not to pay the property taxes or chooses not to repair the roof? What if they move into a nursing home and the estate is left empty?
When the property starts rapidly declining in value, the future owner will want to protect their future interest. However they cannot do anything to the property in the present.
In some cases the future owner will pay the taxes and insurance to make sure that that their future interest keeps its value.
What happens when the house catches fire or is broken into? The insurance check will go to the kids and they may pocket it for future use when the estate becomes theirs.
Now this does not mean a life estate cannot go right. Even if you do not expect a squabble among family members there are still so many other things that can go wrong.
If you would like to learn more about Life Estate please continue to our next article Alternatives to Life Estates
For the full transcript where the information from this post originated, please visit Aging Inisight’s podcast Estates – the proverbial trainwreck over a bundle of sticks.
Ross & Shoalmire are able to bring you this information in part because it’s our passion. We know its importance and we want this information to reach you so bad that we’ve taken the time away from our 6-7 day work week to bring this program to you.