Frequently Asked Questions About Life Estates
A life estate is a type of ownership interest in property that is based on the lifespan of the owner. The owner, known as the “life tenant,” has the right to use and enjoy the property for as long as they live. After the death of the life tenant, the property passes to another party, known as the “remainderman.”
Life estates are a popular way to transfer property since they provide flexibility and allow the owner to retain control during their lifetime. However, they can also be complex legal documents with possible complications, so it is important to know what you’re getting yourself into beforehand and to work with a life estate attorney if you have any questions.
How Do Life Estates Work and What Are the Advantages?
A life estate is a type of legal arrangement in which one person or entity acts as the owner of a property for their lifetime before automatically transferring it to another individual upon death.
The use and possession of the property remain with the original owner during their lifetime. The original owner retains certain rights such as access while also being responsible for all expenses related to maintaining the property. At the same time, the remainderman gains certain rights while the original owner is alive but will not have the rights of full ownership until the original owner’s death.
When the original owner passes away, this arrangement streamlines the process of transferring the home to subsequent generations and safeguards the home from legal action by the original owner’s creditors.
There are numerous different factors that may determine the terms and conditions of a specific life estate. For example, it may specify whether the property will be sold immediately after the original owner’s death or passed on in its existing state, how much time will pass before ownership changes hands, and whether there will be any restrictions placed on who can inherit the property.
Furthermore, both parties involved in a life estate—the recipient as well as the original owner—must carefully consider any unforeseen circumstances that could affect its validity before entering into such an agreement.
How Do You Create a Life Estate?
Creating a life estate is relatively simple and can be done with the help of an estate planning lawyer.
First, the owner must determine who they want to give the property to after their death. They will then need to draft a document known as a life estate deed, which outlines the terms of the life estate. The life estate deed will then need to be signed by both the life tenant and the remainderman. It may also need to be notarized.
Once the deed is complete, it should be recorded with the local land registry office or the recorder’s office for the county in which the property is located. After that, the life tenant will have the right to live in the property for as long as they wish. When they die, ownership of the property will automatically transfer to the person named in the deed.
What Are the Possible Downsides of a Life Estate?
One potential downside is that the holder of a life estate may not have as much control over what happens to the property as they would if they owned it outright. For example, if the life tenant wants to sell the property or make changes like leasing or refinancing it, they generally do not have the right to do so without getting consent from the remainderman.
To add to these possible life estate problems, life estates are rather difficult to reverse. If the life tenant wants to change the remainderman or end the life estate arrangement altogether, the remainderman must agree to it.
There are also some potential tax complications of life estates. If the remainderman agrees to sell the property, the life tenant won’t get won’t be able to keep all of the proceeds from the sale. Instead, the proceeds will be split between both parties according to IRS actuarial tables. Further, the life tenant is responsible for paying property taxes and insurance on the home as any standard property owner would and creditors of the remainderman may be able to file liens against the property.
Given these possible complications, it’s a good idea to consult with an estate planning lawyer before establishing a life estate. To find out if a life estate is right for you, contact The Knee Law Firm in Hackensack, New Jersey, by calling 201-996-1200.