It might seem like a simple solution to a complicated problem. You want your children to inherit your house after your death, but you don’t want them to have to go through a slow and costly probate process to get it. Or maybe you want to ensure that your spouse has a place to live after your death, but you want your children from a previous marriage to get the house after your spouse’s passing. As you understand it, a Life Estate Deed is a simple way to do this. You’ve also heard that a Life Estate can protect your house from Medicaid if you need a nursing home one day. While you’re not wrong that a Life Estate can accomplish some of these things, there are several disadvantages that might make you change your mind.
How a Life Estate Works
A Life Estate is a kind of joint ownership where one party—the life tenant—has the right to occupy the house for the rest of their life and the other party—the beneficiary or remainder owner—takes possession immediately upon the life tenant’s death. Unlike leaving a house to someone in a Will, there is no need to probate a Life Estate. A Life Estate can be created by filing a notarized Life Estate Deed with your local recording office. For example, you could create a deed that names you as the life tenant and your child as the remainder owner, or you could create a Life Estate through your Will, naming your spouse or sibling as the life tenant and your children as the beneficiaries. In most cases, a Life Estate will protect your home from the Medicaid Estate Recovery Program.
Traditional Life Estates Can Create Problems
The tricky thing about a traditional Life Estate is that neither the life tenant nor the beneficiary has complete control of the property. The life tenant occupies the house and is responsible for paying taxes and general upkeep. While the beneficiary holds future interest in the house, they have no legal standing to ensure that the house is cared for and does not lose value. The life tenant has the right to rent out the property for the duration of their life but cannot sell it or borrow against it. The life tenant cannot change the remainder beneficiary without that person’s consent, and if the beneficiary dies before the life tenant, the Life Estate will transfer to their heirs, regardless of the life tenant’s wishes. An additional potential problem with a Life Estate is that it does not offer creditor protection to the beneficiary, so if the heir has a debt or is sued, the creditor or court can come after the house.
As you can see, a traditional Life Estate has the potential to create major conflict within a family. If the life tenant doesn’t care for the house and it falls into disrepair, there is not much the beneficiary can do to protect their future investment. If the life tenant becomes incapacitated and needs a nursing home, the house will not pass on to the heirs until they die. In a situation where the life tenant is the spouse of a deceased parent, it could be many years until the beneficiaries get their inheritance.
So What’s a Better Plan?
There are several ways to accomplish your goal of living in your house until you no longer need to and passing it on to your heirs outside of probate without the disadvantages of a traditional Life Estate. A Transfer on Death Deed is probably the simplest way to get it done. A Lady Bird Deed is a kind of Life Estate that offers a bit more protection to all parties. A Revocable Living Trust is another safe way to protect assets and pass them on according to your wishes. What is best for you depends on a number of factors and is best decided with the help of a Probate attorney.
Are You Looking for an Estate Planning Attorney in Texarkana, TX?
If you are looking for estate planning advice, you need to speak with an experienced estate planning attorney as soon as possible. Contact us online or call our Texarkana office directly at 903.223.5653. We also have offices in Tyler, Paris, Longview as well as Magnolia, AR!
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