All that said, we understand that you think a life estate is better and easier. The most important news stories of the day, curated by Post editors and delivered every morning. See a lawyer for help if you would like to create a life estate or if you are involved with one as a life tenant or remainderman. Life estate transfers can also shorten the lag time for receiving Medicaid or other important benefits. For example, a parent cannot sell a home without permission from his children if his children are beneficiaries in the life estate. A life estate deed is by far the easiest way to go. Most likely, you’ll need to direct the settlement agent well in advance of the settlement, letting them know the name of the person who should be on the proceeds check from the sale. It is also referred to as a tenant for life and life tenant. Life estates can be used to avoid probate and to give a house to children without giving up the ability to live in it. Once an irrevocable trust has been created, the trustee cannot take back control of the trust. With a copy of the trust agreement and other documentation for the closing, the settlement agent should respect the direction to disburse funds to the successor trustee or beneficiary, as may be requested. In this scenario, you could sell the house, remodel, rent out part of it, etc., but the house itself—or the sales proceeds from it—would stay in the trust.”. In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. If the trustee/beneficiary has died, the trust document should name a successor trustee. Often a parent might create a life estate in order to give their house to their child but retain control over it during the parent’s lifetime. The difference in the living trusts and the life estate is that the living trust is a document that contains specific instructions for a trustee in the manner and disbursement of many assets owned by the beneficiary of the trust. A: We’re sorry to disappoint you. In legal terms, it is an estate in real property that ends at death when ownership of the property may revert to the original owner, or it may pass to another person. A life estate allows someone to live in a house until their death. This means you cannot start an irrevocable trust shortly before applying for Medicaid if you want to receive those benefits. $1.00). Transferring large assets, such as a home, into a life estate or irrevocable trust can help an individual qualify for Medicaid. She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. If the successor trustee has a copy of the trust, there shouldn’t be any issues selling the property to a subsequent buyer. Life estates split ownership between the giver and receiver. And life insurance is one of the best ways to fund a trust. Irrevocable trusts and life estates both have their advantages and disadvantages in terms of protecting the house. She can’t sell the property or damage it in any way. What Is the Difference Between a Trust and a Life Estate? You mentioned the life estate owner can still sell the property, but that is incorrect. A trust is a fiduciary relationship in which the trustor gives the trustee the right to hold title to property or assets for the beneficiary. A life estate means your mother has given or sold you the property but you have given her the right to occupy it while she is still alive. A home is typically the most valuable thing you can leave behind, so make sure to protect yourself and your beneficiaries by using an irrevocable trust or a life estate. Life estates can also play an important role in Medicaid planning. A home held in a trust is not that easy to sell, nor does a trust make it easy for heirs to cash the check after a closing or settlement. Revocable trust: Also known as a living trust, a revocable trust can help assets pass outside of probate, yet allows you to retain control of the assets during your (the grantor's) lifetime. The charity is called the “charitable remainderman.” Samuel J. Tamkin is a Chicago-based real estate attorney. ; Objective of the trust – There are different types of trusts tailored to meet a variety of estate planning objectives.For more information on the various types of trusts, see our comprehensive “Guide to Legacy & Estate Planning.” Rules/ Provisions – Clauses in the trust that describe what is to be done with the assets under trust. There are advantages and disadvantages to creating a life estate, … However, there needs to be a five-year gap between the creation of the trust and the application for Medicaid. How to set up an estate plan to eliminate paying taxes on an inherited home, What not to do when preparing to leave a home to an heir, Tax implications of selling a house in a trust. Property – The assets you place into the trust. However, don’t be offended if the grantor does not want to show you values of the trust assets; some people are very private about their finances. A life estate is an interest in real property with a duration measured by the life of a person or group of people. In short, life estates have their advantages and disadvantages, but there are more favorable estate planning methods available, such as a trust that does not have any of the above noted caveats. Set up properly, the trust can cover the tax bills of an estate. Again, the donor irrevocably deeds a personal residence or farm to charity, but retains the right to live in it for a certain term, such as the life or lives of individuals, term of years, or a combination of the two. LIFE ESTATES. An inter-vivos is a fiduciary relationship used in estate planning that is created during the lifetime of the trustor. The laws that define property rights, such as life estates, are the exclusive jurisdiction of the … I don't claim to be an attorney or give legal advice, but I just know with my experience as both an heir and an agent I'd much prefer the life estate deed anytime. The creation of this estate has tax implications for the creator of the estate, and possibly to the life tenant. They also can play an important role in Medicaid planning. It is flexible and can be dissolved at any time, should your circumstances or intentions change. Tax ramifications to consider when estate planning. In fact, one of the primary reasons to use a trust is to avoid probate and issues relating to a will. In common law and statutory law, a life estate (or life tenancy) is the ownership of immovable property for the duration of a person's life. A deed also trumps a will (I know this from personal experience). With advance planning, and working with the settlement agent or title company, you can solve that issue without causing problems at settlement or closing. By signing up you agree to our Terms of Use and Privacy Policy, Discussion of news topics with a point of view, including narratives by individuals regarding their own experiences. Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). A life estate is an estate interest in land that lasts for the life of the life tenant. We understand you think a life estate is better and easier, and we can respect that choice. Otherwise, those funds will be counted as part of existing assets when determining Medicaid eligibility. Once the property is in a trust, most settlement agents and title companies need only to verify the person signing on behalf of the trust is authorized to sign. They can sell or do whatever they choose. The deed includes a provision stating that the parents “retain the right to use and occupy the property during their lifetimes,” a … We’ve never found any issues or problems with sellers using trusts to sell their homes. We can respect that choice. If your estate is valued at less than the exemption level in place at the time of death, your beneficiaries can already receive your death benefit free of estate taxes. If you’re trying to get eligibility for Medicaid and are worried that your home will disqualify you, consider getting an irrevocable trust. When people plan and exercise life estate deeds to bypass probate and eliminate the need to hire a lawyer to make a last will and testament or a trust; Creating a life estate deed is a good option. A life estate is a co-interest in property, which allows the party owning the life estate, known as the life tenant, to use and enjoy the property for their lifetime. Transferring large assets, such as a home, into a life estate or irrevocable trust can help an individual qualify for Medicaid. A life estate deed typically works like this: parents sign a deed transferring their home to their children for nominal consideration (i.e. The Massachusetts Medicaid Regulations specifically define a life estate as follows: ―[A] life estate is established when all of the remainder legal interest in a property is transferred to another, while the legal interest for life rights to use, occupy, or obtain income or profits from the property is retained.‖ When she dies, the life estate ends and you will fully control the property again. The trustee's job is to preserve the property of the life estate, also know as the trust property, and carry out the intentions you set out in your Will for the trust. Usually, the proceeds check is made out to the successor trustee or successor beneficiary. Simply put, life estates are a kind of trust, and trusts require someone to manage them, namely, the trustee. Anyone who is willing to buy it proceeds from the sale could cause issue! 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