Using Life Estates In Your Estate Plan
There are a lot of ways to leave property to others in an estate plan. But one way that often gets overlooked, is the life estate. What is a life estate, and how can it help you in leaving real property, like houses or condominiums, to others?
Division of Ownership
When you form a life estate, you are in essence dividing ownership between you, and whoever else you will be putting on the title of the property. As the primary owner, you are called a life tenant, and the other person is called a remainderman.
Your life estate gives the other person—the remainderman—a form of ownership, but not complete ownership. As the life tenant, you remain the primary owner on the property, and nothing really changes for you when it comes to the property. You still have every right to do whatever you want to do with the property including live there and make decisions about the property, on your own. You also keep all of the responsibilities, like the obligation to pay taxes or insurance on the property.
The only thing you may have more difficulty doing after you form a life estate, is anything related to title of the property. Selling the property, or adding or taking people off the deed, or mortgaging the property, or even getting rid of the life estate that you created, all will need the remainderman’s consent and permission.
Why Use the Life Estate?
But why restrict yourself at all? Isn’t it better just to keep owning your property the way you do now, in just your name, and then leave the house to whomever you want in a will or a trust? You certainly could do that, but the life estate has a number of benefits.
One benefit is that when you, as the life tenant, pass, the house belongs to the remainderman, automatically. There is no probate, and no paperwork needed. The remainderman doesn’t have to wait; he or she has an automatic and immediate ownership interest in the property.
Because the transfer is automatic, it also has the benefit of avoiding probate, and the probate process.
There are also tax benefits as well; although the remainderman inherits the property, it isn’t a true “inheritance,” because the remainderman is already on the title to the property. That means that the remainderman gets a tax benefit, because he or she will only be taxed on the value of the property when purchased—not the value that the property is the day the remainderman inherits it.
Life estates can be complex, and have a lot of ramifications, so although it may seem like it’s just filling out and filing a new deed, you really want an estate planning attorney to see if the life estate will be a good idea for your particular estate plan.
Call the Torrance wills attorneys at Samuel Ford Law today to see if a life state is an estate planning tool you could use.