October 18, 2013   Estate Planning

What is a Life Estate?

There are various forms through which a person can hold ownership in property. One such form is the life estate. If a person holds property in a life estate, he or she retains the right to occupy, possess, and enjoy the property. However, when he or she passes on, their interest in the property automatically terminates. Due to this termination, a life estate holder cannot transfer his or her interest in the property through a will.

Life estates, therefore, are typically used to keep property from being transferred through the process of probate. Consider that a person wants to transfer his home to his child. Without any planning, the home will have to go through the process of probate before ownership could be transferred. In order to avoid this, the homeowner would execute a new deed that reserves a life estate in the home, with a remainder interest to the child. If the deed is executed properly, the home will automatically transfer to the child, upon the parent’s death.

During the parent’s life, he or she will be required to pay all costs – such as insurance and property taxes – as though he is the sole owner. Moreover, the child who was given the remainder estate does not have any right to the property, whatsoever, until the life estate owner dies. Often, spouses use life estates to ensure that their marital home becomes the property of the surviving spouse upon the first spouse’s death.

Importantly, a life estate cannot be revoked. Therefore, once a person sets up his or her ownership of a property in a life estate, he or she cannot sell or otherwise dispose of the home.

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