Kiplinger’s recent article, “An Overlooked Way to Pass Down Your Home Without Probate: The Life Estate,” explains that simply designating a beneficiary in your will or assuming your home will pass to your children might mean issues for your heirs. If you don’t want to create a trust, you may want to consider a life estate.
With this strategy, you (as the “life tenant”) retain the right to live in your home until your death. The property is then automatically transferred to the “remaindermen,” or your designated heirs. This can be advantageous for individuals or for couples who want to be sure that both parties can remain in the home for their lifetimes.
You’ll need to execute and file a deed to the property that records your status as the “grantor,” your remaindermen’s status as “grantees” and a clause on the deed that stipulates that you retain a life estate in the home. You should then update your property insurance policy to reflect the addition of new owners. As the life tenant, you’re still responsible for paying the mortgage, taxes, insurance premiums and maintaining the property. But even though you’ll have all the responsibilities of a full owner, your control over your home is complete. Once you add remaindermen to your property’s deed, you cannot just remove them without their consent. You also can’t sell or mortgage your home without the agreement of the remaindermen.
One potential drawback to a life estate is that a life estate ties up your financial interests with that of your heirs. For example, their divorce or bankruptcy could impact the property with a lien. It is also important to note that giving away assets through a life estate, may impact the timing of Medicaid eligibility and result in gift taxes for your heirs.
In addition to ensuring that you’ll remain in your home, it can make it simpler for your heirs to manage the logistics of your property after you pass away. For instance, you can use a life estate to make sure that your home goes to your children from a previous marriage while also guaranteeing that your spouse can stay for his or her lifetime, if you die first.
When making these types of plans, talk to an experienced estate planning attorney to help find the options that are best for your family. Call Rowley Law today at 847-490-5330 to schedule an appointment.
Reference: Kiplinger (May 2017) “An Overlooked Way to Pass Down Your Home Without Probate: The Life Estate”