There are many ways to structure an estate plan, from a simple will to complex trusts. One of the vehicles is called a life estate. A life estate is a type of interest in real property. This is typically created when a person would like to transfer their property to someone else, but retain the exclusive right to use that property until their death.
There are many reasons a person may choose to create a life estate, so it is best to call the highly experienced estate planning attorneys at Dworken & Bernstein to discuss your estate plan. We can help ensure that you make strategic and savvy decisions to protect your assets while providing you with the most flexibility.
How it works
A life estate creates two separate interests in property: the life estate itself, and the remainder interest. This can be done through a will or a deed.
When you create a life estate, you will retain the right to control and use the property as you see fit, until your death. Life estate holders can therefore, live on the property, remodel, lease it to others and more. They are also obligated to pay property taxes, maintenance costs and make repairs. Life estate holders cannot, in any way, diminish the value of the property.
As soon as the life estate tenant dies, the property automatically transfers to the person holding the remainder interest.
Benefits and disadvantages of life estates
Life estates come with distinct pros and cons:
- Avoids probate: Probate can tie up assets for a considerable length of time. Like a transfer on death affidavit, life estates automatically transfer on death, in this case, to the remainder interest holder after the original owner’s death.
- Retain control: A life estate owner retains control of the property for the rest of their lives. They’re not required to pay the remainder interest holder for lease income: that money belongs to the life tenant.
- Easy to create: Whether through a will or a deed, it’s fast and simple to create a life estate.
- Irrevocable: Be careful. A life estate is irrevocable, unless both the life estate tenant and remainder interest holder both agree to transfer the property back to the owner.
- Can affect Medicaid: Another pitfall is Medicaid eligibility. Establishing a life estate could affect your ability to receive Medicaid benefits, since real property assets count against eligibility, and a life estate has a distinct value.
Is a life estate right for you? The attorneys at Dworken & Bernstein can help you decide. Call us today for a consultation.