Clients often call me asking whether transferring their home to their children is a good idea. Their goal is to make sure their house is protected in the event they need long-term care Medicaid, whether that be home care or nursing home care. Among the different options, including irrevocable trust, is a life estate deed. For some, a life estate makes perfect sense. For others, it may have pitfalls which can irrevocably harm them. This article will attempt to discuss a few items which someone considering life estates should discuss with their elder planning attorney.
What is a Life Estate?
In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate -- the life tenant -- possesses the property during his or her life. The other owner -- the remainderman -- has a current ownership interest but cannot take possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.
Life estates are potentially excellent planning techniques in many circumstances. They permit parents to pass ownership in their homes to their children while retaining absolute possession of the property during their lives. By executing a life estate deed, the property avoids probate at the parents' deaths, is protected from a Medicaid lien, and receives a step-up in tax basis.
What Are Some Potential Issues With Life Estates?
There are potential issues that may arise with life estates and it’s important to fully understand the following risks:
As with most planning tools, a life estate can be very useful with valuable benefits, but it is not for everyone. In many cases, the potential problems outweigh the benefits. As the law in this area is complex, it’s important to talk to a lawyer who knows about this in-depth.