If you own real estate, you may have already given consideration as to who will inherit it upon your death. While you can transfer your property outright during your lifetime by gifting your real estate to the future owners, there are several advantages to giving it to them via a life estate. Not only will this form of joint ownership allow you to continue to live on the property, but a life estate may also place you in an advantageous position in the future if you ever require funds from Medicaid.
When you establish a life estate form of ownership, there are two distinct categories of owners of the property. They are the life tenant owner and the remainder owner.
Life Tenant Owner(s)
The life tenant owner will be you, or you and your spouse in the case of joint life tenants. As the life tenant owner of the property you will retain exclusive rights to use the property during your lifetime, and you will remain entitled to any income that the property may be generating. If at any point you no longer want to reside on the property or you are not able to remain living on the property, you will still have the right to rent the property and collect the income. As the life tenant, you will be responsible for all of the upkeep, taxes, and other expenses that are associated with the property.
The remainder owner or owners will be the person or people who you choose to receive the property upon your death or the last death in the case of joint life tenants. Remainder owners have no rights to use, live on, or receive rental income from the property as long as the life tenant is alive. They are also not responsible for any financial support of the property until they take possession of it.
The Advantages of a Life Estate
There are many advantages to setting up a life estate. Some of these are detailed below.
It Is Simple and Inexpensive to Establish
Unlike some of the more expensive forms of estate planning that you can create, a life estate can be quickly accomplished by a law firm like Thomason & Hessmer. They will help you sign the required documents and explain all of the benefits along with the risks of your decision. Costs for establishing your life trust will include any required title searches, legal fees for the preparation of your new deed, and the cost of recording the new deed.
It Allows the Property to Avoid Probate
One of the best reasons to establish a life estate is that this will allow your property to avoid having to go through probate at the time of the death of the last life tenant owner. This will allow your heirs to avoid the costs and delays that would be experienced if probate was required. After your death, all that the remainder owner(s) will have to do is to furnish a copy of death certificates for all of the life tenant owners to the Registry of Deeds in the county in which the property is recorded. This will allow the title to be cleared and the transfer to the remainder owners to be completed.
It Can Reduce or Eliminate a Medicaid Lien or Recovery
If you find yourself in need of expensive medical or long-term care, you may find yourself needing to qualify for Medicaid funding. Unfortunately, if you own property, upon your death Medicaid is able to recoup or recover the amount they have paid out for your care by placing a lien against and ultimately selling any property that you may have. Most states will only allow a lien to be placed or recovery to take place on properties that are in your probated estate. By creating a life estate, this could protect your property from any potential liens.
Be aware that in order to qualify for Medicaid, the transfer of your property into a life estate may be subjected to a five year look back period imposed by Medicaid. If the transfer has taken place within this five-year period, the property may not be protected, and the value of the property may count against your Medicaid qualification.
Every life situation is different, and you deserve information based on your specific circumstances. A trust lawyer would be glad to provide you with information about whether or not establishing a life estate would be in your best interest.