With a life estate deed , two or more people are granted an ownership interest in a property but for different periods of time. The life tenant possesses the property during his or her life but cannot easily sell or mortgage the property with only a life estate interest. The remainderman, the other ownership interest, cannot take possession of the property until the death of the life estate tenant. The life tenant has a legal responsibility to maintain the property and may execute full control of the property during his or her lifetime. This includes renting it and making improvements to it.
While there are many benefits to life estates, there are also many pitfalls. It can be an excellent tool for Medicaid planning, probate avoidance and an estate tax avoidance strategy; however, take a look at some of the risks involved:
- A life estate is a recorded deed therefore you cannot easily make changes to it.
- All remaindermen must agree if the life tenant wants to sell or borrow against the property.
- One huge issue to consider is that all remaindermen, since they are named on the deed, hold a legal interest in the property. This means that a lien could be filed against the home if any remainderman is sued or owes back taxes. The spouse of any remainderman may have a claim to the interest in the property as well upon death or divorce.
- Complications may arise if a remainderman passes away prior to a life tenant especially if there are multiple remaindermen.
- Creating a life estate deed could still disqualify the grantor from receiving Medicaid benefits if it occurs within the five-year lookback.
While a life estate deed can be very useful and provide many valuable benefits, it is a complex planning tool that requires the involvement of a knowledgeable estate planning attorney. Many factors will need to be considered to determine whether this planning tool is appropriate for your particular situation. For more information on life estate deeds, contact the experienced estate planning law firm, Stouffer Legal, in the Greater Baltimore area.
