The Life Estate: a Planning Tool

A life estate is a contract for property ownership, usually of a residence, that can be a helpful tool for estate planning purposes if the right interpersonal dynamics and documentation are in place.  The most common usage of this tool is when older parents transfer ownership of a home to their adult children: the parents retain the right to use and enjoy the property until their death while paying rent to their children and covering other expenses.  Upon death of the parents, the life tenancy claim lapses and the children own the property outright with no probate or trust administration required. 

During the period of the life estate, the life tenant generally has all of the obligations of ownership: paying property taxes, insurance, utilities, maintenance costs, etc. However, the life tenant cannot independently sell the property or take out a reverse mortgage because the life tenant no longer holds title to the property.  To sell the property, the life tenant and the owner would have to jointly agree to the sale, and the proceeds would be shared based with both parties.

How is this an estate planning tool?  It transfers ownership of property in a way that avoids probate administration at death.  In second marriage situations, it can provide housing for the second spouse while ultimately having the real estate vest in the children of the first marriage.  It can potentially remove the asset from the parents’ portfolio so if long-term care is needed, the property might no longer be included (depending on state law and “lookback” period requirements).

This is not a tool that will work for all families.  If there are debt issues or strained family dynamics, it may not be the right solution.  An experienced estate planning attorney can help guide you through the considerations and draft a contract that will preserve the rights of both parties.

Rev 05/22

The information presented on this website is general in nature and not intended to be legal advice. No attorney-client relationship will exist with Jones, Kuriloff & Sargent, LLC unless agreed to in writing. Please contact us to discuss your particular situation.