A life estate provides a way to split the ownership of an asset and is useful for estate planning purposes. By creating joint ownership of an asset such as a family home, a typical life estate allows one person called the life tenant to live in the home and enjoy limited rights of ownership and possession. The other person, known as the remainderman, has certain rights which include the right to sell their interest, and takes full ownership of the property upon the death of the life tenant. Discuss planning your estate with a financial advisor.
Life estates allow owners of property to share ownership of the property with someone. Often, the property is a primary home and the original owner is a parent setting up joint ownership with one of their offspring. A typical arrangement allows the original owner, called the life tenant, to reside in the home for the rest of their life. After the death of the life tenant, the other party to the agreement, called the remainderman, assumes full ownership.
Life estates are often used in estate planning. One benefit is that the tool transfers property without having to go through the time- and money-consuming process of probate. It can be less costly than other methods of avoiding probate, such as trusts. It also avoids having to sell property or transfer it as a gift, which can be costly or produce unwanted tax consequences. Life estates take precedence over other estate planning documents, such as wills, because assets in a life estate don’t go through probate.
While the life tenant is alive, they retain the right to occupy the property as well as some other rights. After the life tenant’s death, the remainderman takes full ownership. Here is how some of the other rights are divided:
A life estate can give the owner of a home the right to live in the home for the rest of their life, then pass ownership to someone else such as a child. While the original owner is alive, they have limited ownership rights. For example, they can’t sell or borrow against the home without the permission of the other person who will gain ownership later on. They also have the responsibility of maintaining the home’s value. Life estates can be an efficient way to transfer ownership of assets after the owner’s death, because they enable bypassing probate.
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Mark HenricksMark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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