When someone receives a life estate in property, he or she does not completely own the real estate. This may lead a person to doubt the value of the life estate. A life estate is a useful way for a testator to pass on property to someone who may only need it for a while, and then transfer the property to another person chosen by the testator. Using a life estate also has a benefit in reducing a person’s estate in order to be eligible for Medicaid and other asset-based government programs.
A life estate is a form of joint ownership in which one person gets the use of the property during the natural life of a person, such as him or herself, and then the property passes to another person. A life estate is not the same as joint ownership with the right of survivorship where all the joint owners have equal ownership rights. The person who holds the life estate is known as the life tenant, while the person to receive the property at the end of the life estate is known as the remainderman. For example, a person may transfer a house to his or her children, but retain a life interest in the property, allowing that person to live in the house until his or her death before the children acquire full ownership of the property.
The life tenant can exercise this ownership interest in the property as he or she pleases as long as the use does not affect the rights of the remainderman. The life tenant can also use the property to generate income; however, he or she cannot do anything that would negatively affect the value of the property. Along the same lines, the life tenant is usually responsible for paying the mortgage, insurance, and property taxes. If the life tenant would not have the income to keep this up, the testator should consider other ways to pass the property to the life tenant so as to avoid the possibility of the life tenant losing the property through foreclosure or a tax sale.
However, if the life tenant wants to sell the property, he or she can only sell as much interest as he or she has. This can make it difficult to sell the property to someone who would be willing to only keep it for as long as the life tenant is alive, without knowing how long that would be. As long as the ownership of the property is split between the remainderman and the life tenant, it is not possible for either one to transfer full title to the property without the other’s consent. If the parties can agree to sell the property, then they can both do so, and the income from the sale would be divided to each one according to their interests in the property. This means that the life tenant would receive a share calculated based on his or her life expectancy, unless the parties agree to a different distribution.
Contact Us for More Information
For more information on life estates and other ways in which you can transfer real estate with more than one beneficiary in mind, contact Resnick Law, P.C., to consult an experienced estate planning attorneys in Bloomfield Hills and Detroit, Michigan.
(image courtesy of Scott Webb)