A life estate is a type of an estate planning tool that is used to transfer ownership of real property to a beneficiary, while retaining the right for another person to use and enjoy the real property for the remainder of a person’s life. A life estate is typically established through a trust, which is a legal entity created to hold and manage assets for the benefit of one or more beneficiaries.
When a life estate is established in a trust, the property owner, known as the grantor, transfers ownership of the property to a trustee.
The grantor also designates a life tenant, who is the person who will live in the property for the duration of their life (sometimes, although rarely, for the duration of the life of another person). The life tenant has the right to use the real property as their own, but they do not own the property outright. Instead, they have a life estate in the property, which means they have the right to use and enjoy it during their lifetime, but upon their death the ownership of the real property passes to the final intended beneficiary, called a remainder beneficiary.
During the existence of the life estate, the trustee then holds legal title to the real property and is responsible for managing the real property for the benefit of the beneficiary and ensuring that the grantor’s wishes are carried out. The Trust terms should specify whether the trustee or the life tenant are responsible for any remaining mortgages, taxes, insurance, and any necessary repairs.
There are several benefits to using a life estate trust. For one, it allows the grantor to allow someone to live in the property without gifting it to them. Additionally, a life estate can help to avoid probate, because ownership of the property passes to the remainder beneficiary upon the life tenant’s death without the probate process.
However, there are also some potential downsides to using a life estate. While the life tenant is typically obligated to maintain the property in a good condition, if they fail to do so, the eviction process may be difficult and costly. Another potential issue is that the life tenant may not have as much control over the property as they would if they owned it outright.
It is worth noting that life estates are not just for wealthy individuals. It is a very helpful method of ensuring that a life tenant is taken care of, while the intended beneficiary receives the real property at the end.
In alternative to the trust, life estate can be created via deed recorded at the Recorder’s Office in the county in which the real property is situated. Such deed also allows to avoid probate. However, the terms of life estate can usually be defined with a greater detail via trust.
Overall, a life estate can be a useful tool for estate planning, but it is important to consider all the potential benefits and drawbacks before making a decision. The estate plan must be set up properly and all parties involved must understand their rights and responsibilities.
Natalia Vander Laan is a Minden attorney.
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