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Denis A. Kitchen, P.C. Attorney at Law
Estate Planning, Probate Law, Debt Relief And Other Issues In Williamsville, New York

FAQ About Life Estates

What is a life estate?

Here, the word "estate" means a person's ownership interest in real property. So, a "life estate" means ownership for a person's life. At the end of that life, ownership transfers automatically to the "remainderman," (or, to be gender neutral, "remainder person").

How is a life estate created?

A deed establishes the life estate. Typically, an owner of real property gives a deed, conveying his or her property but "retaining a life estate." So, the owner remains the owner of the property during his or her life, and the person(s) to whom the deed is given own a remainder interest.

Why create a life estate?

There can be many reasons, but typically it is done for estate planning purposes (avoiding probate or reducing problems and costs) or for Medicaid/long term care planning (avoiding loss of the value in the event of a lengthy nursing home stay).

What percentage of the property do the life estate owner and the remainder person own?

That is totally dependant on the age of the life estate owner (also called the "life tenant"). Tables are used, based on life expectancy of the life estate owner. For example, a life tenant at age 60 owns about 75% of the property; then at age 70, owns about 60%; then at age 80, about 44%; and at age 90, about 28%.

What does the life estate owner actually own?

Life estate owners have the right to possess and use their property just as they did as full owners, while the remainder person has no right to use or possess the property until the life estate owner's death. Selling the property requires the signatures of both the life tenant and the remainder person.

How is a life estate used in estate planning?

You can, of course, simply leave your real property to your heirs in a will. But a will must be probated which takes time and expense, and it can be contested, taking more time and expense. The life estate is automatic: simply a death certificate will show that the remainder person is now the owner.

What taxes does the remainder person pay when they receive the property?

Property that passes to a remainder person at death or to an heir as part of a decedent's estate is subject to federal and state estate tax; however, a decedent's estate must usually exceed $1,000,000 to be taxable. And both the heir and the remainder person receive a "stepped up basis," so that a later sale of the property uses the date-of-death value to calculate the capital gain taxes on the sale.

If you anticipate selling your property, why not just add a person as a joint owner instead of a life estate?

You could, but that would transfer a one-half interest immediately rather than transferring a variable percentage of the property that grows while the life estate owner's percentage shrinks with advancing age. Also, the transfer of an outright one-half is complete when made whereas the transfer of a remainder interest is incomplete until the death of the life tenant, so the remainder person will only get one-half of the stepped up basis for capital gains tax purposes.

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