For some early context, a Life Estate is the ownership of the land for a person’s life. This land can be passed down from person to person.

When Can a Life Estate Be Confusing?

Recently, I had a family come in who had just lost their dad. Dad was in his 90s, so these kids were in their 60s and 70s.

Dad had made a will, and left his present wife a life estate. He’d owned his home prior to marrying this wife, and he left a life estate in his bank account to his present wife.

The kids were called remaindermen or remainder interest holders. After the wife passed away, the children would be the new owners of the estate.

The questions the kids wanted to be answered: 

  • What does this mean for the wife who is currently living?
  • What can she do with the property and money?
  • What can we do as a remainderman?

This Is Where Life Estate Opens Up a Can of Worms

Under a normal will, you can divide up pieces of your estate: the trees, minerals, water, air, structures on the dirt, etc.

Not only can you divide up the different types of things one can own, but you can also divide up the time period that you own it, present or future.

What a life estate does is give the ownership of the estate to someone else in the future. You retain the right to live and use the property as long as you’re alive.

In short, you have given away the future ownership.

In a case where the kids have the future ownership, then they own that remainder interest. With a life estate, the kids do own the property in a sense. Unlike a will, this cannot be changed by the parents in the future.

The Conflicting Dilemma

Essentially, with a life estate you have a situation where one party has a right to use and occupy, or use and enjoy, something for their lifetime while somebody else actually has an ownership interest in the property that they just can’t do anything with because the first person has a right to use it.

Party One

  • Has the right to occupy and enjoy the estate in their lifetime
  • Can do what they want to the property
  • Keeps the rights to the property as long as they are alive

Party Two

  • Has ownership in the property
  • Cannot use the property while Party One is alive
  • Has a future interest in the property

What happens when the person who is living there decides not to pay the property taxes or chooses not to repair the roof? What if they move into a nursing home and the estate is left empty?

When the property starts rapidly declining in value, the future owner will want to protect their future interest. However, they cannot do anything to the property in the present.

In some cases, the future owner will pay the taxes and insurance to make sure that their future interest keeps its value.

What happens when the house catches fire or is broken into? The insurance check will go to the kids and they may pocket it for future use when the estate becomes theirs.

This does not mean a life estate cannot go right, but there are so many things that can go wrong even if you don't expect a squabble among family members.

If you would like to learn more about Life Estates, please continue to our article about Alternatives to Life Estates.

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