Sunday, February 2, 2014

The Life Estate


The Life Estate
 
Sorry for the generalizations and digressions over the last few weeks, but home improvements can take away from one’s time and focus.  When last we spoke, we were talking about the inheritance of property, land, homes, and other real estate.  As ownership of real property offers particular and unique benefits and obligations, the gifting of such property under a Will is something routinely done, but that requires special attention to determine and accomplish the desires of the gifter in the Estate Plan.  It is possible to gift the use of property to one person, while gifting the ownership of the property to someone else.  The gift of use is called a Life Estate.

A Life Estate is a gift measured by the life of the person holding it or by the life of another person.  Fancy lawyers call this second Life Estate per autre vie, life of another.  A Life Estate may be created by a Will.  When that is done, it is generally created upon the death of the testator or the person making the Will.   When a Life Estate is created, then there is also a remainder interest created, known as remainder beneficiaries, being who will receive the property upon the death of the Life Estate holder, or the triggering autre vie.

There are no magic words to create this Life Estate, but it is frequently left to simple language and basic interpretation.  For instance, someone could say in their Will, “I leave our home to my wife, and upon her death to our children.”  The wife will have the home for so long as she is alive, and then the children get the house.  A more controlling or spiteful spouse might say, “ I leave my house to my wife, for so long as she remains single, and then to my children”.  Sounds weird, but if you know that the house is owned solely by the husband, and that this was a second wife, and that the children were from a first marriage, then it begins to make sense.  Frequently, Life Estates are used to give the family continued use, but then the property would go to a charity.  Consider a gift such as, “I leave our home to my wife, and upon her death to our Church”.  Seems generous, but what about family.  If these people have no children or immediate family, and have an affinity to their church, why not?  Finally, there could be tax incentives in gifting to charity part of one’s estate while leaving other aspects of use or gift to the family.

Lawful Life Estates are not really recommended because they are generally inflexible arrangements.  The Life Estate holder, is frequently also referred to as a Life Tenant, because the right to use is essentially the same as someone who is renting or using a property.   One problem can be where the Life Estate holder and the remainder beneficiaries have different interests.  Also, the Life Estate Holder has an obligation to not damage or waste the property, as they have a duty to remainder beneficiaries.

Next time we will talk about shared interests in property and some other complications that can come with Real Estate.  After we finish talking about Real Estate, we will wrap up Wills by talking about giving the family business and lastly, we will go over residuary gifts.  We will also have a specific discussion about gifts to minors.  We will wrap up wills with some other discussions including charitable gifts.  After that, I hope to have special discussions on taxes.  In the meantime, I hope you will review your Estate Plan with you're “A” Team, or at least begin to seek out an Estate Planning Attorney to start this process.  Stay tuned for future blogs.  However, if you have any questions, feel free to respond below, or if you are interested in learning more about an Estate Plan, Wills, Trusts, Advanced Healthcare Directives, or Divorce, Custody, Visitation, Child Support, Spousal Support, Property Division, Modifications, Remarriage, or Pre-Nuptial Agreements, please contact me at please contact me at fbegun@gmail.com, or through my other websites, www.fcbegun.com, or www.linkedin.com for Fred Begun.