Tuesday, April 28, 2009

Life Estates

Something that I've referred to in previous posts is a form of ownership called a life estate. Life estates occur when an owner sells or gives away real property to another, but reserves the right to live on the property for the remainder of his or her life. The person who receives the property has, what's known as, a remainder interest.

Life estates can be useful tools in the estate planning process. This type of ownership can allow the property to be transferred upon death without going through the probate process, because the person who has the remainder interest already owns the property.

Life estates can also have tax benefits. The basis of the property will be the market value at the death, rather than at the time of the gift, which will generally result in a tax savings when the property is later sold.

Life estates can have some benefit for medical assistance planning. Theoretically, medical assistance liens placed on the property for benefits expended for the grantor should disappear upon their death. However, the Minnesota legislature enacted a statute in 2003 which allows medical liens to remain on the property after the grantor's death. Life estates no longer allow property to pass free and clear from any medical liens. However, a life estate may reduce the amount of value of the property that a medical can attach to.

If a life estate seems like a form of ownership that may address some of your estate planning concerns, contact a licensed attorney.

39 comments:

  1. I am confused about the liens that can be placed by the state on Life Estate trusts - my mother set up one in 1992. She recently moved into Assisted Living and is on county waiver and receiving MA benefits. Her entire social security check goes to the assisted living home. Her home is being rented out to cover the expenses and taxe and association dues of her home. Her income including savings never run over $2500 per month.
    Can the state put a lien against her property even if it has been held in trust prior to 2003?

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  2. Generally, a lien cannot be put on a life estate that was created prior to 2003, but the trust and the specific terms of that trust may complicate things. You should speak with an attorney in your area about the lien, who can look at the terms of the trust and the specific circumstances in your case and determine if and how the lien can be removed. Good luck!

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  3. Can a life estate be reversed? Mother granted a life estate to 3 siblings who are now fighting over the home. One sibling and fiance live in home with mom. They pay all of mom's expenses and those of the home. They live in MN can mom do anything to reverse this mess?

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  4. Life estates are a gift. Even though you retain the right to live in the property for your life, you've given the property away. Recently, Minnesota passed legislation that allows termination on death deeds, which can be revoked. TODDs can prevent this type of issues. You may want to speak with a licensed attorney in your area to review whether a valid life estate was created and what rights your mother has.

    Good luck!

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  5. my parents have a life estate on the house they are currently living in and they are contemplating moving to assisted living. The life estate was placed on the house via quit claim deed in 2000. i was told by a planner they cant get in to assisted living and receive benefits as long as they still have this life estate. I think this person is referring to the fact that the life estate has value and they need to spend that so called value before they receive benefits under elderly waiver. This was the first I heard of this and its become a major barrier. Your insights are appreciated.

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  6. My Father and Step-mother had a life estate setup in 2000. My Father has passed away. Now the life estate holder wants to move from their home and sell the property and maintain all the proceeds from the sale for themselves. The life estate holder is now saying they did not realize what they signed. Is it possible to get a life estate reversed and have the remainderperson's removed with no entitlement? I am one of the many remainderpersons and do not wish to sign off on the deed. I have researched this and it seems like it is close to impossible to do so. The proerty is located in the state of Minnesota. What would be the process or courts were they would have to go through if they were to attempt to do this and the general time period it would take to do?

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  7. Life Estates and Eligibility: That is a great question that I haven't run across before. I would suggest contacting the county department of human servicese to verify the planner's statements. There have been individuals with the pre-2003 life estate who have received benefits. You could also get a second opinion from an attorney that deals with medical assistance. Good luck!

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  8. Life Estate Reversal: A life estate cannot be reversed. That is, the remainder interest given by the life estate holder, can't be taken back by a life estate holder. There is a new form of ownership, a Terminiation on Death Deed, that can. If the life estate is valid, the only realistic way for the remaindermen's interest to be cleared from the title, is for them to sign away their interest. You should meet with an attorney who deals in real estate law who can find out all the facts in your case and see what, if any, good options are out there. Good luck!

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  9. Our mother quit claim deeded her home to her children (the 6 of us)back in 1995 & reserved a life estate. In 2010 she moved into an apartment and the house was subsequently sold for under $100k. Our question is - is she entitled to a percentage of the sale proceeds and what are the tax consequences to the grantees (i.e. tax basis and capital gain)?

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  10. Yes, your mother's life estate has value. When the property was sold, her rights to the property during her life ended, assuming the sale properly transfered her rights. This tax season, it's especially important for you and your mother to work with a CPA to properly classify the proceeds and correctly attribute the amount for your mother's life estate. Good luck!

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  11. Recently we moved my grandparents into an assisted living and there house was in a life lease until recently. All my aunts and uncles signed the homestead back over to my grandparents in order to sell to me. Is there a certain percentage we need to stay above if they happen to run out of money and need to go on medical assistance? Can the welfar system come back to collect more money if they think the homkestaed was sold at a better price than they think it should have been?

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  12. The answer to your question is highly dependant on the state you're located in, the value of the property, the age of the current owner, and the cost of care. You should speak with a licensed attorney in your state who practices in medical assistance law to determine the risks and best course of action.

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  13. Can a life estate that we gave to my sister inlaw be revoked if we know that sh eis not taking care of the home, has issues with hoarding, The home is in our name, she has nothing on the deed, i believe. but would like to know if it is possible to revoke this on this condition.

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  14. The answer to your question is highly dependent on what the deed actually says (for example, does your sister have an enforcable life estate created by a deed, or is it an informal arraigment) and the particular law of your state. I would definetly recommend sitting down with an attorney licensed in your state to look at the deed and discuss your options.

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  15. Parents deeded land in MN with a joint retained life estate. What is to be included in the first to die estate and then in the second to die estate? Is it one half the value in each?

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  16. My grandparents had a life estate. Prior to having the life estate, the will left their money to each of their five children. whne they transferred to a life estate, they were told that their children's spouses also had interest in the property. Currently, my stepfather who is widowed has a claim on the inheritance from my maternal grandmother's estate, leaving her my mother's three biological children with nothing. Is there anything that can be done - other than signing off on the probate and letting stepfather take all of my mother's share?

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  17. It depends on what circumstances you're talking about it "being included". Life estates terminate upon death and are not part of a probated estate. If your question deals with values to be included for tax returns, a CPA or tax attorney can best assist. The best thing to do is get a copy of the deed and meet with either a licensed attorney or CPA, depending upon your needs.

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  18. Spousal rights to an estate, in this case case, your step dad's right to your mother's interest in your grandparent's estate, will depend on when they passed away, if there were any wills or trusts involved and what statutory spousal rights in the state where mother lived in before they passed away. You should meet with a licensed attorney in that state to review your options.

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  19. Both my parents have been on medical assistance for a number of years. My dad recently passed away after being in nursing care for several years. My mom is getting close to needing assisted living. Can she sell her home and use the proceeds to pay for assisted living without worrying about any MA lien, or is the a better way to plan for her potential long-term care needs?

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  20. My parents created a life estate on their house to my sister and I. I have some debt due to a divorce and have to file bankruptcy soon. Is it possible to gift my half of the estate to my sister and remove my name from the property? If possible is there a waiting period before filing bankrupcty? I don't want to restrict my parents from selling the house and downsizing someday. Its not their fault I'm in this position. Thanks for your advice. (I live in MN)

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  21. Your situation points out the drawbacks of life estates. Because you are considering bankruptcy, you should meet with a bankruptcy attorney to carefully consider your options. Bankruptcy law frowns on transfers made prior to filing and you might get dinged in a future proceeding. A bankruptcy attorney will be well versed in what you can and can't do before filing. Good luck!

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  22. Medical Assistance is a sticky issue and with very state specific laws that change all the time. From what you've said, there is a likelihood that there is already a medical assistance lien based on your father's care. I would meet with an attorney in your state that specializes in medical assistance to see if anything can be done from on your mother's side to minimize futher liens.

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  23. I'm looking at two deeds on the same property. The first deed recorded is husband & wife giving a life estate to their kids. The second deed recorded right after the first is husband quitclaiming to the wife. Is the second deed valid???

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  24. I own 380 acres of farmland. It would now be valued well over the $1,000,000 MN Estate Tax threshold. If I give it to my two children and keep life estate, would this land be included when determining the amount of my estate for tax purposes ? My estate would then be well under $1,000,000 without the land.

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  25. My mother created a Life Estate/Quit Claim Deed,filed 1/2/98. She named her three children as the recipients of the Life Estate. What happens to the share of the child who subsequently died? Does his share go to the surviving Life Estate holders, or his heirs?

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  26. we have a family farm that has been in our family for 130years. there is a life estate on it from my great aunt and has been sold to my father and his sister and brother. our goal is to keep the farm in the family. now that my aunt is in her late 80's we are trying to get more information on whether a life estate is our best option. one thing we are very curious about is if we renew a life estate and the farm is passed down to the four grandchildren what ramifications would any possible debt have in the event of one of us passing. for example one of my cousins just graduated from medical school and has a substantial student loan debt. if he were to pass away suddenly would that debt be charged to the farm?

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  27. Deeds are valid if they meet statutory requirements. The real question is what right in the property the husband had in the second deed. If you have a question about who has title to (owns) the property, you should meet with a licensed attorney who deals with real estate.

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  28. This first question is whether you and your siblings were recipients of the life estate in that your mother gave you all the right to live on the property for your lives or if you all received the property, except that she can live on the property during her life. If the second is the case, the rights of your deceased siblings estate will depend on the specific wording on the deed. Basically, are the three of you joint tenants, in which case the right of one transfers to the others automatically upon their death or if the three of you own as tenant's in common, in which case the interest of the one who passed away will be part of their estate which will likely need to be probated. An attorney licensed in the state where the land is located can let you know what type of ownership is own the deed. Good luck!

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  29. It sounds like your family would like the farm to automatically transfer to family members, without going through probate while also protecting the farm from particular creditors. That being the case a family farm corporation or trust may be a better vehicle. Technically, a creditor of a remainderman (the person who owns the property, subject to the life estate) can try to collect a judgement through the debtor's interest in property, including a remainder interest. Your family should meet with an attorney licensed in the state where the land is located to determine whether creating an entity makes sense, make sure that the entity is allowed to own farmland and the drawbacks of getting rid of the life estate. Good luck!

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  30. My father-in-law has three children. It was agreed upon many years ago that his lake place would be left to my husband. His sister recently moved back to MN and has begun trying to convince their father that he should make my husband buy the place from him. He has told us this is not what he wants and said he has it in his will that the land is to go to my husband. He also had a house that he had sold contract for deed to his other son. That son ended up divorced and basically he doesn't make payments anymore and was told the house is his inheritance. To our knowledge the house is still in dad's name and his will states it goes to brother. We are not comfortable with only the will and we would like to find another way for him to make sure that his wishes are carried out and no one can interfere with it. We had tried to convince him to sign over the property to my husband now as we are doing all of the upkeep and paying for most everything for the place. He was fine with the idea of signing it over until the daughter got upset because she was afraid if he went into a nursing home and his money was exhausted she would get nothing. So, to make a long story as short as possible, we are looking for a way that we can protect our interests and his fathers wishes without doing anything that would jeapordize him or his interests in any way. We have looked at Living Estate, Transfer on Death Deed, and Joint tenancy but have no idea which would be the best route to go. We also would prefer to handle things in a way that could keep us out of probate.

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  31. My mother died in 1978. I am from a very large farm family that has a big operation. When she passed away she divided her half of the home place (land, buildings, bins, home, operation) between the 9 children with a life estate from for my dad. He owns the other 50% of the home farm and everything on it. Can he force a sale? Anything I can do to protect my interest. This land is in Iowa and is worth a lot of money.

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  32. Questions in MN, an option that your father-in-law may be more comfortable with is a transfer on death deed (read more about it here: http://minnesotaestateplanningandprobate.blogspot.com/2008/10/whats-todd.html )

    A TODD is revocable. Your husband and father-in-law should make an appointment with a Minnesota attorney to discuss options to make sure the father-in-law's wishes happen.

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  33. Anonymous, generally it's difficult for life tenants to push a sale, but not impossible. Iowa may have very specific laws regarding this and options to keep the operation going with multiple land owners. You should meet with an Iowa attorney to discuss your options.

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  34. Could my father give up his life estate to push a sale?
    Thank you so much for your help. This is a very sad time for our family. My mother would be so sad how this has been handled and how my father is treating some of us.

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  35. Anonymous,

    This kind of property ownership setup can feel really uncertain for owners and create a lot of stress. You should meet with an attorney licensed in Iowa to review the ownership interests and determine what rights your father-in-law has and what rights your husband has. Knowing where your father-in-law sits and where your husband sits can greatly reduce stress. Good luck!

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  36. In 1996, my grandparents granted our family cabin to my uncle and mother as joint tenants, a life estate for their natural lives; with remainder interest to my three cousins, my sister and I. Initially my mom & uncle split the costs of taxes, insurance, upkeep etc 50/50. Over the past 10 years or so, the costs have risen greatly and the amount paid for by my mother vs her brother is more like 75/25. My 3 cousins feel that they are ENTITLED to be at the cabin 50% of the usable time, and have threatened my mother with trying to have the place condemned if she doesn't vacate the premises when they want to be there. Can the remaindermen demand usage during her lifetime and make her vacate the premises?

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  37. I have two questions. In 2004 my parents signed a Life Estate for their farm in MN to myself and 4 siblings. My father passed away last year. Is there any reason that his name should be removed from the deed now or can that be done after my mother passes away. Also, If my mother would need to go on assisted living, could there be a lein placed on the property?

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  38. Generally the rights of remaindermen are limited during the life of the life tenant. Usually the only duty the life tenant owes the remaindermen is to pay taxes and not commit waste on the property. It appears your cousins may be blowing smoke. I'd meet with an attorney to evaluate exactly what rights your cousins have and consider having the lawyer tell them to back off on the rest.

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  39. A lien could be placed on the property, as the life estate was created after 2003. As far as removing your father's name, generally all that needs to be done is to sign an affidavit of survivorship, attach a certified copy of the death certificate and record them. Because it's a relatively simple process, you can take care of it now or wait until you need to clear up title. I suggest you meet with an attorney who can draft the affidavit.

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