A life estate deed describes a transfer of title from a homeowner (sometimes referred to as a life tenant) to a second party wherein the homeowner retains the right to use of the property until the life tenant’s death. During his or her lifetime, the life tenant may be responsible for all expenses related to the real property, including taxes, mortgage, utilities, and other upkeep costs.
While the life tenant is alive, the second party has no legal claim to the property. The second party (sometimes referred to as a remainderman) may not sell or transfer the real property without the approval of all life tenants.
Upon the death of the life tenant, title to the real property will pass directly to the remainderman, thus skipping the probate process.
Disadvantages of a Life Estate Deed?
Although the use of a life estate deed may be a cost-effective estate planning tool, there are a number of disadvantages of a life estate deed:
- The real estate property could be deemed as the remainderman’s commingled marital property and subject to equitable distribution for a divorcing spouse.
- The real estate property could be subject to the remainderman’s creditors.
- If real estate property needed to be transferred back to the life tenant, the remainderman may refuse.
- If real estate property was sold during the life tenant’s lifetime, the life tenant will lose the $250,000 (or $500,000) capital gains exemption.
- If real estate property was sold during the life tenant’s lifetime, the sales proceeds would then be an available resource for Medicaid eligibility and subject for estate recovery.
A good estate plan is complicated, therefore, you need an experienced attorney to guide you through the process. For any further information regarding life estate deeds, please contact us to schedule an appointment.
