When will I Need a Life Estate?
End of life planning is never pleasant, but putting some effort into it now can save yourself and your family many headaches down the road. If you have decided to start end of life planning, you may be surprised at how many options there are, and overwhelmed as to what options are best for you. Today, we will discuss life estates and when you will need one.
What is a Life Estate?
First and foremost, a life estate is a real estate transfer where a person sells or gives away their home, but retains the right to live in it until they die, or their spouse passes away. This is done to protect the asset from things like nursing homes and Medicaid. A life estate is a form of joint-ownership of a property, between two or more people, and at different times. Essentially, the owner of the property has control of it until their death, at which time the co-owner takes control of the property.
A life estate occurs when a person has a legal right to use property during life, but does not own the property outright. That person is called the life tenant. After the death of the life tenant, the property passes to the named beneficiaries, called remaindermen.
When do I Need a Life Estate?
There are several situations in which a life estate makes sense. For instance, it makes sense if you are looking to transfer your home, but maintain access to it while you are alive. It can also work toward giving you some reassurance as to who your property will go to after you die. It can be less expensive than a living trust, and may help you qualify for Medicaid, as well as with senior tax discounts. It may also alleviate some of the tax burden on your heirs upon your death.
Be aware that this arrangement can trigger a five-year Medicaid ineligibility period, which can be avoided if the person purchasing the life estate lives in the home for at least a one-year period, and pays a fair amount of the life estate. It may also be used as a way to have the property not involved in the probate process.
A life estate may also be useful in cases where a child has special needs, and the parent wants to ensure they will be able to stay in the house after the parent dies, while ultimately wanting the house to go to their other children.
Disadvantages of a Life Estate
Before moving on with a life estate, it is important to consider the disadvantages. Some of the disadvantages include being unable to sell your life estate or use the property as collateral without the permission of the remaindermen; inability to get financing on the property; inability to reverse the life estate, just because you have decided that you want to; the possibility that your heir’s creditors will be able to place a lien on the property, and, if the remainderman passes away before you do, you will be in a partnership with their heirs on the property.
The life tenant is responsible for the property while living and using the property, and keeping it in good shape for the remaindermen. This can also include financial obligations around the property, and keeping those in good standing. There can be situations where tension arises between the life tenant and the remaindermen, especially since the remaindermen will receive the property at some point. A good relationship between the two parties can ensure the proper maintenance of the property.
Contact The Mattar Firm
If you think a life estate may be something you should look into contact The Mattar Firm. Our experienced estate planning lawyers can assist you in establishing a life estate and all your estate planning needs. Contact us today at 239-222-2222.