Life Estate in Estate Planning

A person can create a legal document signing over the property rights to a house to another person or entity, such as a university. They may retain out of these rights their right to live at the house for the rest of their life. In doing so, they create a “life estate” in the house for themselves. A life estate is a legal arrangement regarding property. In a life estate, an individual or group or company is given the right to occupy, possess, or otherwise use a piece of property. This can be real property, land or a building, or an item, such as a car. The person who receives the right (“Person A”) is allowed to use the property for the life of another person (“Person B”). When this situation involves real property, Person A may be referred to as a “life tenant.” If Person B gives Person A the right to receive income from the property, they are allowed to keep receiving income for the full length of the life estate. This may occur as long as Person A does not revoke Person B’s right to receive income. When Person B dies, Person A’s right to use the property dies as well. Person A’s right to the property then reverts to the individual or group designated to receive the property after Person B’s death. The new owner/s of the property may be called “remainder men,” or a “remainder man.” Typically, remaindermen are listed by Person B in a deed or will.

A life estate ceases to exist at the death of the person who granted the property right. A life estate cannot be gifted from the person who received it to their heirs or devisees. No one can inherit a life estate. If a person wants to leave a family estate to their spouse, and upon the death of the spouse, require that the estate pass on to their children, a life estate may be the perfect tool to ensure that the estate stays in the family. This is particularly important if the surviving spouse remarries, and the stepwife or stephusband’s family members want a right to the estate.

People often use life estates when they determine who will receive their real and personal property. A life estate can have legal and tax problems. In today’s financial and legal landscape, trusts are typically more flexible, and more useful. To determine whether a life estate is the best option for you, consult an experienced estate planning attorney in your area.