Life Estate Deeds
A Life Estate Deed is an effective tool that can remove real estate from your Probate estate. Other assets that are in your name individually, such as cars, bank accounts, stock etc. can still be controlled by the terms of your Will.
Basically, a Life Estate Deed can add remaindermen (usually the client’s children) to a deed while creating and reserving a Life Estate, or Life Estates in the property for the current owner or owners. A Life Estate Deed enables people to live in their home for the rest of their life and continue to maintain a legal interest in the home. The Life Tenant(s) are still responsible for paying real estate taxes, insurance, maintenance, municipal assessments, fees, charges, and expenses relating to the property. A Life Estate Deed also avoids Probate (only with regard to the home). Your Will would control other assets that are in your name individually, and your trust controls the assets that are in the trust.
A Life Estate Deed can also be beneficial in certain circumstances because the remaindermen can get a higher “tax basis” which can reduce or eliminate their capital gains taxes if and when they sell the property.
Caveat: After signing a Life Estate Deed, you do lose some control over the property. For example, if you ever want the property sold, or if you are interested in having it utilized as collateral for a mortgage or home equity loan, you have to obtain the assent of the remaindermen, and they have to voluntarily participate in any proposed transaction(s). Also, as in all cases, if a remainderman named in a Life Estate Deed were to file bankruptcy, divorce, or be sued, their interest in the property could be subject to those proceedings. Also, if the remaindermen were to predecease the Life Tenant(s), the Life Estate(s) would still remain in place. The interest of any deceased remaindermen would then pass through his or her Estate.