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What is a Life Estate and Why Would You Want One? - Massachusetts

  
  
  

By Christina T. Vidoli

What is a life estate?

            The term “life estate” refers to property that is owned by an individual only through the duration of his or her lifetime.  Therefore, it’s always for an indefinite period of time.   We usually encounter life estates when dealing with real estate.  When you have a life estate, you are called the “life tenant.”  For example, you can sell or give your home to your children, but retain a “life estate,” thereby reserving the right to live in, use, enjoy, and control the home until you die.  Your children would be called the “remaindermen.”   

Why would I want a life estate?

            Probate Avoidance:  A life estate is a way to pass your home to your children or other beneficiaries without going through probate.  If you own a home and the title is in your name alone at death, it will have to go through probate.  Keep in mind that having a Will does not avoid probate and a Will simply tells the court how to distribute the property in your estate.

            Tax Planning:  Also, retaining a life estate in your home means that it remains an asset of your estate for estate tax purposes and allows your children to receive what is known as a step-up in basis of the real estate.  This means they inherit the property at the date of death value, not the value as of the date upon which you acquired the property.  So, when your children sell the property, they should be able to avoid capital gains, unless of course, the property appreciates to a value greater than the date of death value prior to the sale. 

            Protection for long-term care purposes:  We often use life estates as a way to preserve the home for long-term care planning purposes.  Without providing all of the details relative to the MassHealth rules, this type of transfer will trigger the five year waiting period for eligibility.  After the five year transfer period, the property should be protected.  However, a lien may be placed on the property, but only up to the value of the life estate and not the entire value of the property. 

What are my responsibilities when I have a life estate?

            When you are a life tenant, you are still responsible for paying the mortgage, property taxes and insurance, and making repairs to the property. 

Are there any problems with life estates?

            There are problems that may arise and it’s important to fully understand the following risks:

  • A life tenant, you may not easily sell or mortgage property with a life estate interest.  The remainderman must all agree if you decide to sell or borrow against the property.  In addition, if the property is sold, the remainderman could demand a share of the proceeds equal to what their interest is determined to be at that time.    

  • You cannot simply remove or change a name once it is on a deed to real estate like you can change the beneficiary on a life insurance policy or bank account.

  • Once any remainderman is named on the deed to your house, he or she has an interest in the home and his or her legal problems could become yours.  For example, if your child, who is a remainderman, is sued or owes taxes, a lien could be filed against your home.  Your child’s interest in the home is not protected if he or she files bankruptcy.  If your child gets a divorce, his or her spouse could claim all or part of your child’s interest in your home.  Should your child die before you do, the child’s estate would have to go through probate unless at least one other remainderman was listed as a joint tenant.

  • As touched upon above, giving away an interest in property could disqualify you from receiving assistance should you require long-term care from the State.  In addition, the State could have a claim against the value of your life estate for services rendered during the life tenant’s lifetime.

            A life estate is a useful estate planning tool with valuable benefits, but is not for everyone.  In many cases, the potential problems might easily outweigh the benefits.  As the law in this area is complex, it’s important to talk to a lawyer who knows this area of the law well.  

                         

Margolis & Bloom, LLP, practices estate, long-term care and special needs planning in Boston, Dedham, Framingham and Woburn with a strong commitment to client service.  If you have questions about these or other legal matters, do not hesitate to contact us by e-mail by clicking here or by calling us at 617.267.9700.

Comments

My grandmother has a Life Estate that leaves her house only to me an my 3 sisters. Her son is the power of attorney and will receive any other assets she has when she passes. She is 95 and is now in a nursing home and will remain there for the remainder of her life. Who is responsible for the taxes / up keep since my grandmother will no longer have an income? Would it be her Son (Power of Attorney) or us the remainderman of the Life Estate?
Posted @ Thursday, May 03, 2012 2:35 PM by Lisa
Technically, your grandmother is legally responsible for the upkeep on the house as the so-called "life tenant." If she has savings, then your uncle is responsible for using those savings to maintain the house. However, if your mother doesn't have the resources because she has to pay all of her income to the nursing home, then it's a "jump ball" -- you'll have to work out among you how to pay for the upkeep. One possibility would be to rent out the house. If that's not feasible, it seems that it would make sense for you and your sister to pay, even if you're not legally obligated to do so, in order to protect the property that will ultimately pass to you.
Posted @ Friday, May 04, 2012 1:19 PM by Harry Margolis
Thank you for this run down, it was 
helpful. 
 
Is there a cost for filling for a  
life estate?
Posted @ Wednesday, February 06, 2013 8:19 AM by Anne Marini
There's a filing fee, I think of $125. Law firm's would charge probably anywhere from $250 to $1,500 to prepare the deed, depending a lot on what else is involved in the matter.
Posted @ Wednesday, February 06, 2013 11:45 AM by Harry Margolis
If I sell the home in which I have a life estate, and buy a new home, does the life estate transfer to the new home or does it start the 5 year wait period from the beginning of a new life estate. 
 
Also, what is an "enhanced life estate"? 
Posted @ Monday, August 26, 2013 3:02 PM by Bev Buckley
In New York is the life tenant responsible for paying the mortgage and other expenses
Posted @ Tuesday, August 27, 2013 8:35 AM by Vinton Roye
Life tenant and sole remainderman and his wife and children live in what might be called a duplex. Life estate was established 18 years ago. Sole remainderman pays the mortgage and a prorated larger share of the taxes. Of late, the relationship between the life tenant and remainderman have soured. The life tenant recently hired a lawyer who sent the remainderman and his family a letter of eviction. Can the life tenant "evict" the remainderman and his family?
Posted @ Friday, September 20, 2013 11:36 AM by Robert
The prices of real estate properties go ups & downs as the global economy experience instability..
Posted @ Thursday, October 10, 2013 1:18 AM by jet ski prices
My grandfather passed away and his house has my mother and my two uncles listed as remaindermen. One of my uncles lives in the house and has decided to make some internal renovations to the house. Apparently, he has made a few and has made no attempts to communicate or consult with my mother or other uncle on what has been already renovated. 
 
Because the house is now under the three remaindermen, does my uncle have to get permission by the other two remaindermen to make any changes to the house regardless of what they are? If any of the renovations devalue the house or property, does my other uncle and mother have recourse to regain any potentially lost value if they decide to sell the house?
Posted @ Friday, November 29, 2013 12:45 AM by Doug
My mother is a resident of Massachusetts and owns a home there. She came to visit us for Christmas and has been diagnosed with cancer. It is unlikely that she can return to Massachusetts to get a life estate, can this be done remotely? Does a Massachusetts lawyer have to draw up the life estate deed?
Posted @ Friday, January 10, 2014 3:20 PM by Laurie
Laurie, 
 
I'm sorry to hear about your mother. Yes, your mother can execute a deed creating a life estate from anywhere. It's best that a Massachusetts attorney draw up the deed to be safe, but not absolutely necessary. Feel free to call us at 617.267.9700 if you would like to discuss this further.
Posted @ Monday, January 13, 2014 11:55 AM by Harry Margolis
My mother has a life estate with my sister and I as the remainderman. My sister and husband has moved back into my mother's house to help take care of her while she stays in the house. They are making major modifications to the house. Do they need my approval or consent to make the changes? If so, what are the ramifications if the changes are made without my consent?
Posted @ Thursday, February 27, 2014 12:04 PM by Jay
Jay, 
 
That's an interesting question. My guess is that they would need your approval, but it's hard to say what the remedy would be if they went ahead without your approval. To the extent the modifications increase the value of the property, you will ultimately benefit when it's sold. You may have a claim if the improvements decrease the value. I'll see if we can get a more definitive answer.
Posted @ Thursday, February 27, 2014 1:29 PM by Harry S. Margolis
Dear Jay, 
 
We've done some further research to try to get a more definitive answer to your question, but haven't found a case or rule exactly on point. You would definitely have a claim if the remodeling decreased the value of the house. In either case, you may be able to seek an injunction to bar the work on the house. However, you should be aware that the action would have to be against your mother who as the life tenant is responsible for the property during her life. She is giving permission to your sister and her husband to do the work on the house.
Posted @ Sunday, March 02, 2014 3:02 PM by Harry Margolis
Harry, 
 
Thank you for your comments and your research.  
 
My mother has not given permission for them to make the changes. But her omission of a definitive "No" has allowed them to make the changes. Her attitude has been - it's their money, they can waste it if they want to. They gutted the cellar and winterized the porch but she's said no on re-modelling the kitchen. My sister believes that the remainderman is responsible for house maintenance contrary to what the law states. 
One of my concerns is who pays for the changes and can they go after the proceeds from the house sail after my mom passes away?
Posted @ Tuesday, March 04, 2014 3:35 PM by Jay
I would like to know what happens if a life estate, with consent of all involved, is sold DURING the life tenant's lifetime.
Posted @ Thursday, March 06, 2014 5:35 PM by Andrea
Jay, 
 
Technically your sister and her husband should have no claim for reimbursement. But they may claim that they had an agreement with your mother that somehow binds the property or is payable from her other assets. You may want to put them on notice that they cannot look to the proceeds of the sale. If this gets into litigation, everyone loses and you'll probably settle somewhere in the middle of your positions.
Posted @ Monday, March 10, 2014 9:05 AM by Harry Margolis
Dear Andrea, 
 
When property held as a life estate is sold, the proceeds are distributed to everyone on the deed in proportion to their interests. The life tenant's interest is determined based on her age when the property is sold as well as then current interest rates. The older the life tenant, the smaller her interest because she's likely to be occupying the property for fewer years.
Posted @ Monday, March 10, 2014 1:30 PM by Harry Margolis
In her will, my grandmother gave my Aunt a life estate in the family house and at my Aunt's death, the property was to go to the remaining living siblings. Before my Aunt with the life estate died, the siblings transferred the home into a trust via quitclaim convenant. Can the siblings fund the trust with the property with their future interest to the property prior to the life tenant's death? Thanks so much.
Posted @ Thursday, June 05, 2014 7:01 PM by Lori
Lori, 
 
Yes, there's not problem with the siblings transferring their remainder interest into a trust.
Posted @ Friday, June 06, 2014 8:08 AM by Harry S. Margolis
My father passed away 7 years ago & had a life estate in my home. Is there any reason why I would want or need to remove him from the deed? I was told years ago that should I ever sell the home, it could be done at that time but I am currently applying for a home equity line & the bank underwriter is requiring that I do this.
Posted @ Thursday, June 26, 2014 2:27 PM by Kathy
Kathy, 
 
You probably need to take two steps, record an original death certificate for your father plus an affidavit that no estate tax was due when he passed away (assuming that his estate was less than $1 million). The closing attorney for the loan should be able to help you with these.
Posted @ Thursday, June 26, 2014 2:35 PM by Harry S. Margolis
Thanks Jay! He actually remarried about a year before he passed away, his spouse took care of his finances so I had no part in his finances or his estate upon his death. I appreciate your help!
Posted @ Thursday, June 26, 2014 2:42 PM by Kathy
My father left me a life estate in his house. He passed away and I live there and pay the taxes. My sister was left his money, but no life estate. Can I sell the house and move? If so ,is my sister entitled to any money from the sale of the house? I live in N.J. Thanks.
Posted @ Saturday, July 12, 2014 9:29 AM by joe
Dear Joe, 
 
While I don't practice in New Jersey and I haven't seen the actual deed creating the life estate, it sounds like the house is now 100% yours. This means you can sell it and can keep all of the proceeds. However, to be certain, you need to show the deed to a New Jersey real estate or estate planning attorney.
Posted @ Monday, July 14, 2014 8:11 AM by Harry Margolis
i have a life estate in farm land that on my death goes to my two sons. I would like to give up my rights and let them have it and sell it as they are starting their lives and familys and could use the money to give them a great start and some financial security for their familys. as they are the remainderman could this be done.
Posted @ Monday, July 21, 2014 2:44 PM by jan swier
Dear Ms. Swier, 
 
This can be accomplished by your deeding your interest to your sons. But I recommend consulting with an accountant or estate planning attorney first to make sure that there are no adverse tax consequences to your taking this step.
Posted @ Monday, July 21, 2014 4:09 PM by Harry Margolis
My mother put her house in Life Estate in 2009 and then released it from Life Estate in April 2014. She is still living but we the children sold the house. We are responsible for the capital gains with the IRS? nor her.
Posted @ Tuesday, July 22, 2014 11:50 PM by Claudia Pompella
Dear Ms. Pompella, 
 
As you describe it, you and your children are responsible for the capital gain. If your mother had not released her interest, you would have shared the obligation, at least to some extent.
Posted @ Wednesday, July 23, 2014 4:39 PM by Harry Margolis
My spouse and I paid cash for a home in 2006. In 2007 my spouse signed his one half undivided interest to me and retained a life estate. He then used his life estate to get a reverse mortgage, even though I did not sign anything and he did not have my permission to mortgage. Can the bank hold me to this mortgage if I did not sign it?
Posted @ Saturday, July 26, 2014 4:21 PM by Hanna
My mother gifted us her home in 1998. She did not have a life estate registered with the registry of deeds. We had a lease agreement with her that stated she could live there for the rest of her life and that she was responsible for paying all maintenance, taxes, utilities etc. Can this lease be considered a life estate?
Posted @ Sunday, July 27, 2014 2:25 PM by Madeline
Dear Hanna, 
 
It's not at all clear how your husband could have gotten a reverse mortgage without your signature if you own half the house. You will need to show the documentation to an estate planning or real estate attorney. 
 
Dear Madeline, 
 
A lease is not a life estate. But I am curious as to the context -- why you are asking the question. While the two are different, the lease may give your mother rights that are relevant to your mother's situation.
Posted @ Monday, July 28, 2014 8:03 AM by Harry Margolis
Barbara, 
 
I don't know that it's bank fraud since the bank will be protected. But the whole deal is unusual. You need to work out with the friend how your co-ownership is going to work. I strongly recommend that you engage counsel to represent you.
Posted @ Thursday, July 31, 2014 8:47 AM by Harry Margolis
Life estate vs lease. My mother gifted her home to us (siblings) in 1998. No life estate deed but we have a lease saying she can live there for the rest of her life. No rent but must pay taxes, utilities, maintenance etc.  
 
My mother passed away at home last dec 2013 at the age of 94. Because we don't have a life estate deed, our capital gains goes back to 1963 when she built the house. I was wondering if the IRS would accept a life lease agreement. It was not notarized and not filed.
Posted @ Thursday, July 31, 2014 11:17 AM by Madeline
Madeline, 
 
The fact that your mother lived in the house should give you and your siblings a step-up in basis with or without the lease. I don't remember the Code citation off hand, but an accountant or tax attorney should be able to find it for you.
Posted @ Thursday, July 31, 2014 1:18 PM by Harry Margolis
My grandma passed and had her deed in a life estate and also my dad listed on deed. In her will she listed myself and my father as to receive her home. 
my father thinks he owns the whole home because his name is on deed even though will says we both get it
Posted @ Friday, August 01, 2014 2:10 PM by shannon carroll
Dear Ms. Carroll, 
 
Based on what you say, it sounds like your father is right. But you will need to show the documents to an estate planning or real estate attorney to be certain.
Posted @ Friday, August 01, 2014 2:22 PM by Harry Margolis
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