A life estate is a legal instrument that involves the transfer of an interest in real estate property from the owner to a recipient. The recipient, known as the life tenant, assumes all the benefits of owning the property for their lifetime, with the property reverting back to, or returning to, a remainderman after their death.
A life estate is limited in duration to the lifetime of the life tenant. In some instances, the duration of the life estate can be limited by the life of another individual, such as a spouse or child of the original property owner.
Additionally, the property in the life estate can be transferred to another individual other than the original owner once the life tenant passes away. Any such restrictions or limitations are generally specified in the written document that covers the transfer.
How is Life Estate Created?
A life estate is usually created by an agreement between a property owner and the life tenant. In most cases, this is accomplished by using a written document, similar to the way a contract is used for other types of agreements.
In some cases, a life estate can be granted through an individual’s will. In these cases, when the life estate holder passes away, the property will be transferred to the original owner’s survivors, since the original owner is already deceased.
How Does a Life Estate Work?
An example will be used to explain how a life estate works. Suppose Person A is married to Person B. Person A owns Blackacre, where Persons A and B both reside. Person A states in a deed that Blackacke goes to Person B for life, then to Person C.
Suppose Person A passes away and Person B is permitted to occupy, possess, and enjoy Blackacre. When Person B passes away, the property automatically goes to Person C, also known as the remainderman. The remainderman is the individual to whom the property is deeded upon the death of the life tenant.
Why Might an Individual Want a Life Estate?
There are several reasons an individual may want to create a life estate. These may include:
- Avoiding probate;
- Tax planning; or
- Ensuring protection for the life tenant.
A life estate may be used to avoid probate because it is a manner through which to pass property to an individual’s children or other beneficiaries without having to go through probate. If an individual passes away, any property in their name alone will be required to pass through probate, which can be expensive, time consuming, and stressful for their heirs and beneficiaries.
A life estate may have tax planning implications. If an individual retains a life estate in their property, it continues to be an asset of their estate. It allows their children to have a step-up basis, which means they can inherit the property at the value that is determined at the date of the parent’s death instead of the date on which the parent purchased the property. This allows the individual’s children to avoid paying capital gains taxes if the value of the property is not greater at the time of sale.
A life estate may also ensure protections for the life tenant. Many individuals utilize life estates for peace of mind to ensure their loved ones can remain on the property for the rest of their lives. For example, if an individual remarries and wants to ensure his new wife will not be evicted from their home by his children after he passes away, he may deed her a life estate.
How is a Life Estate Terminated?
A life estate, by definition, allows the holder to use and possess the property during their lifetime. Therefore, life estates will typically terminate upon the death of the life tenant. Once the life tenant passes away, the property reverts back to the original grantor, if they are still alive, or it will pass to their estate.
In some instances, a life estate may be terminated prior to the death of the life tenant. This may occur if the document that conveyed the life estate contained conditions that were to be kept in order for the life tenant to keep the property. For example, the life estate agreement may state that the life estate terminates if the tenant fails to meet a certain condition.
These conditions are up to the property owner. However, they must be valid under local and state laws in order to be enforceable. For example, the conditions cannot force the life tenant to engage in illegal activities.
What are Some Types of Life Estate Property Disputes?
A life estate can be a favorable type of transfer, especially when an individual has an interest in having the property revert back to its original owner. However, since they are complex in nature, life estate arrangements can lead to various types of property disputes.
A common type of dispute that arises from life estates involves the property owner’s duties. For example, a life tenant is required to fulfill various duties, which include things such as protecting the property from encumbrances and resolving certain real estate tax issues. Failure to fulfill these obligations may harm the future interests of the remainder persons, and is typically legally considered to be waste.
There may also be other types of life estate property disputes, including:
- The property owner’s duties, which is a common dispute;
- The identification, location, or description of the property;
- A dispute regarding who is the proper life tenant or remainderman; or
- Whether or not the life tenant can sell or transfer their interest in the property to an heir or other interested party.
The majority of these life estate disputes can be resolved through clear and proper drafting of the agreement. In most cases, this requires the assistance of an attorney.
In most cases, life estate disputes are resolved through a civil lawsuit. A lawsuit may result in a damages award being issued to either the life tenant or the remainderman, depending on the losses experienced.
For instance, a fraudulent transfer of a life estate interest may affect both the life tenant and the remainderman. These cases will typically require a detailed analysis of the deed documents. Therefore, it is advisable for the deed document to be preserved in writing and recorded in the county office where the property is located.
What are Some Remedies for Life Estate Property Disputes?
There are several remedies that may be available for life estate property disputes. These may include:
- Monetary damages for any losses caused by waste or mismanagement of property;
- An injunction issued by a court requiring transfer or surrendering of the property; or
- Rewriting or revising the life estate contract documents.
The type of remedy that is awarded will depend on the nature of the dispute. In some cases, more than one remedy may be awarded.
Do I Need a Lawyer for Help With Life Estate Property Disputes?
Yes, it is essential to have the assistance of an experienced estate lawyer for any issues involving life estate property disputes. Some life estate disputes can only be resolved by court intervention because of the complexity of the legal issues involved.
An attorney can review your case, including your life estate documents, advise you on how to proceed during any disputes, and represent you during any court proceedings, if necessary. It is important to have an attorney’s assistance when you are drafting your life estate documents, so you can avoid any future disputes.