What is a ‘Life Estate’?

I had a question this week from a potential client who knew that her brother was allowed to live in her deceased mother’s house until he died and then the house was supposed to be divided equally between the remaining sisters and brothers.  This arrangement is called a ‘life estate’, and it means that the brother has lawful possession as long as he is alive.  The other sisters and brothers are called ‘remaindermen’.

A more common example is when a parent (for our example we will say the mother) dies leaving a spouse and children.  The spouse later remarries and wants to make sure that his new wife will not need to move out of the family home if something should happen to him.  He grants a life estate to his new wife with the remainder of the ownership going to his children at her death.

This sounds like a simple way to handle things and you may wonder why it isn’t used more often.

One problem is that the life estate ends when the named person dies.  This means that if the named person is sick or in a nursing home, the remainder owners do not have the right to do anything with the property until the named person dies.

There is also the problem that a person with a ‘life estate’ can only give or sell what he owns.  That means that he can’t sell the house to anyone else, or make arrangements for someone else to live in the house either.  This has caused problems like the situation where an uncle had a life estate in the family home and put in his Will that the home should go to his favorite niece.  She thought it was hers, except that the uncle didn’t have ownership to give!  Once he died, the house belonged to the ‘remaindermen’.

In the case of the person who called our office, the brother had gotten married and the family wanted to know if his wife would inherit the house if the brother died.  (the answer is no…because once he died, his life estate ended).

Then, there is the problem of who is supposed to pay the bills for the house.  You may think that the person living in the house should be paying the bills.  But what if the house needs a new roof that is expected to last 30 years?  Should a 90 year old person with a life estate be required to put a new roof on the home, even though it is unlikely that he will be in the home long enough to use it all?

A Life Estate can also be set to terminate on the death of someone else.  For example, let’s suppose mother has four children.  Son 1 is disabled and cannot live on his own.  Daughter 1 is not disabled and has agreed to take care of son 1.  Son 2 and Daughter 2 are both married and living in another state with their respective families.  Mother wants to make sure that Daughter 1 has a home in which to care for Son 1 so she grants a life estate to Daughter 1 for so long as Son 1 is alive, with the remainder being divided equally between the 3 remaining children when Son 1 dies.    What this means is that Daughter 1 will probably need to move out of the home after Son 1 dies because otherwise she would need to be able to purchase the other 2/3 of the house from her remaining siblings.

I’ve even seen a case where a cat lover gave a life estate in her home to her friend for so long as her favorite cat was alive so that the friend could take care of the cat and the cat would not need to move to a strange house.

As you can see, a Life Estate can be a useful tool in your estate planning arsenal, but only if it is planned correctly.

If you have any questions about this or any other legal subject, please feel free to give us a call at 757-234-4650 or visit our website at http://www.BeaversLaw.com.

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