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Pros and Cons of Creating a Florida Life Estate: Part One – The Benefits

Perhaps you have been doing some early estate planning. Maybe you have heard the term “life estate” but are unsure if it would help in your situation. Like any form of early property distribution designed to take an asset out of your estate, there are potential risks and benefits. Although a trust is generally far more advisable than a life estate deed, there are limited circumstances where a person may wish to use these devices. Let us take a look at how a life estate really works.

What is a life estate?

With a typical deed – warranty or quitclaim – one party transfers complete ownership of a property to another party. The deal is done. The party giving up the property has no more interest in it or responsibility for it. However, a life estate is different. Essentially, there are two parties. One has a right to occupy and enjoy the property while she is still alive. This is called a life tenant. This person has an interest in the property while alive but has no real ownership in the sense that they cannot sell, transfer, or leave it in a will. The other party has a “remainder interest,” meaning he has no right to occupy or enjoy so long as the life tenant is alive. But the moment the life tenant dies, the property immediately becomes vested in the remainder. In other words, he now owns it completely just as though he had purchased it outright.

A life estate basically creates a way for one party to live in a property while living, and passes it to another party when the former passes away. There are a few ways a life estate can be set up. Sometimes a party will purchase a property and then grant another party a life estate. In other cases, a party who already owns the home will give the property to someone else – usually a relative – but retain a life estate. As with anything, there are risks and benefits. Here are just a few.

You get to remain in your home but avoid expenses

If you trust your adult children, it can be helpful to create a deed that grants the property to yourself as life tenant and your child as the remainderman. This clever use of a life estate allows you to remain in your home while living and immediately transfer the property to an adult child upon death without going through probate.

You can provide a home for a spouse, while ensuring a child’s inheritance

For seniors who married late in life, there are often adult children and other close relatives from a prior marriage. While you may want to make sure your spouse can live in his or her home for life, you may also want to ensure the value and equity of the home are left to your own children rather than your spouse’s. Here is a common example:

Steve has owned his home for many years. He raised a family in the home and was married to his first wife for 40 years, and they had a son, Michael. When his first wife died, he remarried Susan. They have been married for about five years, but Steve has been diagnosed with terminal cancer and has a life expectancy of about two years, according to several doctors. He creates a deed, granting Susan a life estate but leaving the remainder interest to Michael. When Steve dies, Susan will get to keep living in the home as long as she is alive and can live there. When she passes away, the home will pass directly to Michael to sell or use however he wants.

Life estates are not always a good idea

While these examples demonstrate just a couple ways that a life estate can help, there are plenty of ways they can backfire. Stay tuned for part two, when some of the risks of a life estate are discussed. If you are interested in setting up a deed or property transfer of any kind as part of your estate plan, contact an experienced elder law attorney at the Millhorn Elder Law Planning Group in The Villages. No single approach is right for everyone.

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