There is a term used for property owners as a life estate in real estate. The life estate is used quite a bit in the United States for trust transactions.
A life estate is when a person is granted the right to use the property for the term of their life. Once the life estate holder dies, then the property is passed on to the property owner. The individual who holds the life estate does have rights to the property and can usually still get income from the property for the term of their life.
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Life Estate Explained
Life estate, also known as life tenancy, is the ownership of immovable property for the duration of a person’s life. In legal terms, it is an estate in real property that ends at the person’s death, given the life estate.
The owner of a life estate is known as a “life tenant,” as their right to use the property expires when they die.
When the person who holds a life estate dies, the ownership can pass to the original owner or another person. The right of the life estate ends at the time when a person dies who is holding the property.
The property will not pass on to the children or heirs unless stated to be the rightful owners when the holder of the life estate holder dies.
Rights And Privileges Under Life Estate
Life estates can differ as there can be stipulations in the life estate. Here are some of the basic things that a life estate may include:
- The Benefit of Ownership – A life tenant typically comes with certain rights to enjoy the benefits of property ownership, such as income from rent of other property uses.
- Cannot Sell – As the tenancy is for the individual’s life, many life tenancies can let out the property, but they cannot sell it. They are considered a temporary owner whose ownership expires upon death.
- Cannot Give or Bequeath Property – A life estate holder can not give or bequeath the property. This includes passing it on to their heirs. The terms of who will get ownership once the life estate holder dies are set out in the legal life estate documents.
- Financial and Physical Responsibility on Life Tenant – Under the terms of the life tenancy, the life tenant has to abide by the legal doctrine of waste that prohibits the life tenant from damaging or devaluing the asset or property. The law views the life estate tenancy as temporary, so the life estate holder must work to maintain the property and the property value and cannot do any action to destroy the property.
The holder of a life estate can usually use the property and even get income from the property for the term of their lives, but they can not pass on or sell the property. The life estate holder has a limitation of the property’s rights as the property’s ownership will pass to another individual upon their death.
Use of Life Estate In Real Estate In The United States
In the United States, the life estate is usually used as a tool for estate planning. A life estate can avoid probate and ensure that the intended heir will receive title to the real property upon the death of the life estate holder.
Sometimes, this is used when someone has a home and wants to stay in the house but ensures the rightful heir inherits the home upon death.
Here is an example of how a life estate could be used:
Fred has a home that he wants to be sure his nephew Frank will inherit upon his death. Fred transfers title of the home to Frank and then sets up a Life Estate so that he can live in the home until he dies. Fred keeps the life estate and Frank has a fee simple title. When Fred dies, Frank becomes owner of the Fred’s home.
An advantage to this is that there is no need for the will; Frank will become the complete owner of the home when Fred dies. It also eliminates the need for probate assets.
A disadvantage is that Frank holds the fee simple title and can try to sell the home out from under Fred without Fred knowing. This fraud would only work with an unsuspecting purchaser who did not do their due diligence.
Another disadvantage to the grantor is that the provision for any remainderman is irrevocable without the remainderman’s consent. To help ensure this does not happen, some states have instituted “beneficiary deeds.”
The life estate process in the United States can differ from state to state. So if you are considering a life estate, you need to check the laws of the state where the real property is located.
For example, some states allow for an enhanced life estate deed. The grantor can still transfer the property to a third party without the remainderman’s consent.
This allows the grantor or the original owner to avoid probate without giving up the right to sell the real property.
A life estate is not just used in the United States but is also popular in many other places, including the United Kingdom. Many see the life estate as a vehicle to ensure the property goes to the right person upon death while helping avoid many messy probate issues.
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