Who Owns the Property When There Is a Life Estate?

A life estate provides a way to split the ownership of an asset and is useful for estate planning purposes. By creating joint ownership of an asset such as a family home, a typical life estate allows one person called the life tenant to live in the home and enjoy limited rights of ownership and possession. The other person, known as the remainderman, has certain rights which include the right to sell their interest, and takes full ownership of the property upon the death of the life tenant. Discuss planning your estate with a financial advisor .

Life Estate Essentials

Life estates allow owners of property to share ownership of the property with someone. Often, the property is a primary home and the original owner is a parent setting up joint ownership with one of their offspring. A typical arrangement allows the original owner, called the life tenant, to reside in the home for the rest of their life. After the death of the life tenant, the other party to the agreement, called the remainderman, assumes full ownership.

Life estates are often used in estate planning . One benefit is that the tool transfers property without having to go through the time- and money-consuming process of probate . It can be less costly than other methods of avoiding probate, such as trusts . It also avoids having to sell property or transfer it as a gift, which can be costly or produce unwanted tax consequences. Life estates take precedence over other estate planning documents, such as wills , because assets in a life estate don't go through probate.

Ownership Details

While the life tenant is alive, they retain the right to occupy the property as well as some other rights. After the life tenant's death, the remainderman takes full ownership. Here is how some of the other rights are divided:

• Although the life tenant can occupy the property, the life tenant can't sell the property or transfer it to someone else without the permission of the remainderman. Nor can the life tenant take out a mortgage on the property without the remainderman's approval. This prohibition on mortgage means the life tenant cannot obtain a home equity loan or reverse mortgage using the home as collateral unless the remainderman agrees to it.
• The life tenant also has some responsibilities, including maintaining the property's value, including keeping up with repairs. In addition, the life tenant is responsible for paying any property or other taxes due on the property while they are living in it. Premiums for insurance protecting the home are also the responsibility of the life tenant .
• The remainderman takes full ownership upon the death of the life tenant. At that point, the remainderman can occupy the property, rent it to someone else or sell it, without having to consult anyone else. Until taking full ownership, the remainderman has some limited rights. These include the right to block the sale of the property.
• The remainderman can't sell the entire property without the approval of the life tenant. However, the remainderman can sell their interest in the property without getting the life tenant's consent. If this happens, the buyer of the remainderman's interest becomes the new remainderman and can, along with the other rights, gain full ownership of the property on the death of the life tenant.
• If the remainderman and the life tenant agree to sell the entire property, the proceeds will be split up based on the life tenant's age and life expectancy. When selling at a younger age, the life tenant gets a larger share.
• Life estates can create joint ownership of other types of assets, such as stocks or bonds. A life tenant in an estate involving securities might have the right to collect interest or dividends during their lifetime. After their lifetime, the remainderman would have the right to the payments.
• Life estates take precedence over other estate planning tools and documents, such as wills. That is because when property is transferred through a life estate, the transfer takes place before probate. So if a life estate says one thing and the will says another, the life estate will prevail.
• Trusts can also do some of the estate planning work performed by a life estate. For example, property can be placed in a trust to transfer to someone else on the death of the original creator of the trust. Trusts can provide more control, because a trust may be modified, while a life estate cannot. This could be an issue if, for instance, the remainderman died before the life tenant and the remainderman's interest in the property passed to a survivor whom the life tenant did not want to have that interest.

Bottom Line

A life estate can give the owner of a home the right to live in the home for the rest of their life, then pass ownership to someone else such as a child. While the original owner is alive, they have limited ownership rights. For example, they can't sell or borrow against the home without the permission of the other person who will gain ownership later on. They also have the responsibility of maintaining the home's value. Life estates can be an efficient way to transfer ownership of assets after the owner's death, because they enable bypassing probate.

Retirement Planning Tips

• If you’re contemplating making moves to plan your estate, discuss it with a financial advisor . Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• SmartAsset's retirement calculator can provide you with invaluable insight into what it takes to financially prepare for retirement.

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