A life estate is a form of real estate ownership that allows an individual to retain certain rights to the property for their lifetime, granting them the ability to use and possess it. Individuals can make more informed real estate decisions if they understand how life estates work and their potential benefits and drawbacks.
How Does a Life Estate Work?
A life estate, also known as an estate for years or a term of life, is a legal arrangement that grants the individual holding it, called the "life tenant," temporary ownership of a particular real property or asset. Life estates are defined by the duration of one person's lifetime and can be transferred to another after their passing.
Life estates operate differently from traditional freehold estates because they are not permanent and do not involve fee simple ownership rights. Instead, life tenants are entitled to possess and use the property until their passing. Upon death, any remaining interest in the property passes on to another party.
Advantages and Disadvantages of Life Estates
Advantages
A life estate can provide numerous advantages, especially for those looking to make property arrangements that meet their specific needs.
- Flexibility: A life estate can be used to transfer ownership while still allowing current owners to maintain rights and privileges such as living in the home or collecting rent on it. It also allows for customized arrangements between multiple people, making it ideal for family members who wish to share ownership but only want some parties involved in managing the property directly.
- Asset Protection: This can be an effective planning measure to protect one’s assets from long-term skilled nursing costs.
- Tax Benefits: A life estate allows someone to give away or leave behind property without capital gain taxes being applied upon sale after death.
Disadvantages
However, there are some disadvantages associated with this type of arrangement.
- Lack of Liquidity: Life estates often lack liquidity because they are held by multiple parties.
- Loss of Control: Retaining only a life estate causes the grantor to lose a certain amount of control over the property, such as the ability to sell or refinance.
Why Should You Establish a Life Estate?
Life estates can be created by any individual who owns real estate or personal property, including stocks and bonds. The person holding the life estate will be known as the “life tenant” and will possess the asset throughout his or her lifetime. Upon the life tenant's death, asset ownership will be passed on to whoever was named in their life estate as the successor beneficiary. This assures that their beloved properties will remain intact upon passing away and be handled according to their wishes.
Contact Us for Personalized Estate Planning
Our team of experienced attorneys is here to assist you in navigating the complexities of estate planning and ensuring that your wishes are honored. If you have additional questions regarding life estates, contact us today to start creating an estate plan tailored specifically to you.