What Are Life Estates and How Do They Work?
Life estates establish joint ownership of a property; in the case of a family member passing away and leaving the estate to a child or other family member for example. Life estates make this process a much more seamless one for all parties involved. The person who sets up the life estate will be able to reside in their home until they pass at which point the person they selected to take over the property and all related expenses will obtain ownership after the death certificate is filed. They will then have to cover both property tax and insurance. This is a huge decision for someone to make since even while they are still alive, they will not have complete control over their home anymore. The homeowner will need to get approval from the person they appointed before taking any actions such as selling the property. It is so important to think long and hard about who you choose to give this much power over your affairs.
Reasons People Create Life Estates
People create life estates to ease their stress over the future care of their property without having to write up a will and testament. This means they can relax as they age knowing that they don’t need to be concerned about what will happen to their home. Sometimes the government might try to recover Medicaid costs from an estate if the owner needed care from them before they passed away. A life estate also protects the property from this occurrence.
Conventional Life Estates
Conventional life estates are put together by the owner of a fee simple property for the life tenant. Once the estate is terminated, the rights to the property will be transferred to a set person or to the prior owner. At the time it is a life estate, the owner has full control of the property as long as they do not damage the property or infringe on the rights of anyone else connected to said property at the risk of facing legal action. There are two types of conventional life estates; ordinary and pur autre vie life estates.
Legal Life Estates
Legal life estates are created according to state law and not an agreement dictated by a property owner. The goal of this estate is to outline and guard the rights of those who live on in the place of their significant others. There are a few different types of legal life estates; homestead, dower and curtesy, and elective share. A homestead is a person’s primary residence. Homestead laws prevent families from losing the property if a creditor is trying to recover a debt and shows up to do so when their loved one passes away. Dower and curtesy refers to the life estate interest of the wife as it pertains to property owned by the husband or vice versa. When one of them passes away, the property then belongs to the other under the dower laws for as long as they live. An elective share is a statute that gives the living spouse the power to make a claim on the property of the spouse who has passed on. For instance, if a wife’s will states that her husband would not be entitled to any inheritance, the husband could make an elective share claim when she passed away.
They Don’t Always Work
Life estates don’t always work, sometimes this causes issues for the life tenant who appointed someone to their property in the event of their death. Since the life tenant does not have full control and cannot make decisions without the permission of the appointed (remainderman), issues could arise if the remainderman does not agree. If the life tenant wishes to sell the property or obtain a mortgage, they will need the permission of the remainderman. They will also need permission from the remainderman in the event that they decide to replace them or end the life estate. If the remainderman allows the sale to go through, the life tenant will have to split any earnings. Also, if the remainderman is facing financial hardship, creditors could place a lien against the life tenant’s property. Although the life tenant loses quite a bit of power by appointing a remainderman, they would still have to pay for the property taxes and home insurance just as if they still maintained full control. Life estates can be an excellent option for the right situation; however, it is so important to consider the negative sides as well. If you are electing someone as a remainderman, make sure you fully consider your decision.