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What is a life estate?
A life estate is a type of property ownership where two or more people have ownership rights.
The life tenant is the person with the right to possess and use the property for the duration of their life. This means that the life tenant has lifetime use of the property. The life tenant cannot leave the property to his or her heirs. Instead, after the life tenant’s death, the property goes to the remainderman.
The remainderman (or remaindermen) is the person (or people) with the right to take possession of the property after the death of the life tenant. Remaindermen have a “future interest.” During the life of the life tenant, the remaindermen do not have a right to use the property. You can think of the remainderman as the “beneficiary” who receives the property after the death of the life tenant. After the death of the life tenant, the property passes to the remaindermen. The remaindermen will then be owners of the property.
The measuring life determines the length of the life estate. The measuring life is the person whose death ends the life estate. Usually, the duration of the life estate is tied to the life of the life tenant. However, there are circumstances where the duration of the life estate can be tied to another measuring life. Sometimes you will hear the legal term, “rule against perpetuities,” in this context. The rule against perpetuities voids a property interest unless it occurs within a specified period of time (usually 21 years after the death of an identified person). The rule against perpetuities is a complex topic and is not addressed by this article.
Generally, the life tenant has full control of the property during their life. The life tenant can use the property, rent the property, improve the property, etc. The life tenant also has responsibilities. For example, the life tenant must maintain the property. The life tenant cannot damage or devalue the property. The life tenant may also have financial responsibilities, such as mortgage payments, real estate taxes, and utilities.
The life tenant also has limitations. For example, a life tenant cannot outright sell the property, although the life tenant may sell their life interest in the property. This means that the buyer would own and be responsible for the property for the duration of the life tenant’s life. If the life tenant wants to mortgage the property, then all parties (life tenant and remaindermen) must agree to this and sign off on the mortgage.
Life estates can be created through deeds, wills, and trusts. This article only addresses life estate deeds.
Read the law: Md. Code, Real Property § 14-102
Life Estate Deeds
The deed is the written document that transfers title (or ownership) of a property from one person to another person. This legal document must be recorded with the Land Records in the Circuit Court of the county where the property is located.
There are several ways to give others certain rights to your property, and the life estate deed is one of those options. The exact words used in the life estate deed are very important as the specific language of the deed can have significant results. For example, you can call a document a life estate deed, but if the language contained in the deed creates property interests that are in conflict with a life estate deed, then you may not have conveyed a life estate.
Be very careful about the wording of the deed. If you can, get help from an experienced attorney so that you can ensure that your deed accomplishes what you would like it to accomplish.
Potential Benefits and Risks
Whether you should move forward with a life estate deed depends on the specific facts and circumstances of your situation. There are potential benefits. For example, you can avoid probate, life estate deeds may play a role in Medicaid planning, and a life estate deed may allow you to stay in your home while making sure your home passes along to the people you would like it to go to.
There are also risks that you should consider. There may be tax consequences that you need to consider. Also, there may be tensions between the life tenant and the remaindermen as they can have different, competing goals for the property. For example, a life tenant may be interested in maximizing profits from a property in the short term, but the remaindermen may have more long term interests. There may be differences in what appropriate property maintenance looks like and what is waste. Consider your relationship with potential remaindermen, and whether you think can work cooperatively with them.
Generally, the life estate terminates on the death of life tenant, assuming that the life tenant is the measuring life. However, there may be other situations where a life estate may terminate. For example, a life estate does not protect a property from things like foreclosure.
Also, all of the interested parties (life tenant, remaindermen) can also agree to terminate the life estate. If you are seeking to terminate a life estate, consult with an attorney.