Without question, your home is one of the most important assets that you will have during your lifetime. However, there are countless people who have a dream of giving that house to their children when they pass away. However, depending on your situation, you may want to consider passing your home to your children now while reserving what is known as a life estate for yourself. But what exactly is a life estate?
A Life Estate: Explained
A life estate can be part of an estate plan when the owner of the property, known as the grantor, signs a deed which effectively states that the grantor has the right to live in that home for the rest of his or her life. The grantor is then referred to as the life tenant and will not only continue to live in the home but also pay all property tax and other insurance payments to maintain the property.
Although it may seem like not a lot has changed, the reality in this shift is that there are certain details of the home maintenance that the life tenant will now have to speak with the property beneficiary about going forward. For instance, in order to change any details of the mortgage, the life tenant will now need approval from the beneficiary. Also, a life estate is not something that can be revoked unless the beneficiary agrees to it.
The leading benefit of having a life estate is that when the life tenant passes away, the full ownership of the property is immediately transferred to the beneficiary. Instead of needing to go through the complete probate process, all the beneficiary would need to do is to file a copy of the death certificate with their local county to show that the life tenant has passed away. Keep in mind that if estate tax is owned on the estate, a life estate does not negate the tax that would be owed so it’s important to prepare for that scenario if need be. In most cases, a revocable living trust can accomplish the same result, while providing flexibility for future planning.
How to Create a Life Estate
It’s important to understand that there are several steps associated with creating a life estate. This is not a process that should be taken lightly and it’s something that should always be done with the assistance of an experience estate planning attorney. Here is a brief overview of the process of how to create a life estate:
- Give careful consideration as to whether creating a life estate is best for you
Establishing a life estate is an important decision to make not only for your estate plan but with the relationships that you have with the people that you’re naming as beneficiaries. Talking all of these details through with your family and loved ones should always be part of the process of developing a life estate.
- Retain a knowledgeable and experienced estate planning attorney
You should always collaborate with an estate planning attorney when it comes to developing a life estate. It’s critical that your attorney review all of the details of your life estate with you to ensure that everything is fundamentally sound and that the best interests of all parties are always served.
- Draft the life estate deed
This part of the plan is something that your estate planning attorney will do on your behalf. You will notice that there will be several key details in the deed such as your name, the name of the beneficiary, the address and other transactional information. From there, the deed will need to be filed with the county where the property is located.
As you can see, there are many moving parts in developing a plan for a life estate. Get in touch with us today so that we can help you put your plan into action.