What is a life estate?

A life estate is when a piece of property or land is owned by one party who conveys the interest of the property to another person for a life term. The life term may be that of the owner, the other person, or some other named individual. When the life term expires, the property ownership will revert back to the original landowner. The people named to the rights to the property upon the death of the life estate individual are called remaindermen (the reversion of the property is known as a remainder).

Example

In one situation, a property owner could convey the rights to use the property to another individual for as long as that individual lives. When the individual who received the rights of ownership dies, the ownership does not go to his or her heirs. Instead, it reverts back to the original owners, their heirs, or other remaindermen. The original owner of the property can also name the life term of the property to be other than either himself or the person he is conveying the rights to; the term could expire on the death of his wife or some other named person.

When is the life estate used?

Life estates are most often granted to older relatives of a couple who want to live close by. In most cases, there will already be a residence in place and the new owner can move right in.

In some cases, though, the life estate can be used to fool a person into spending money on something for which they will receive no benefits. Say, for example, that a son had a piece of property with no building on it. His mother is interested in moving to that piece of unimproved property, and in order to make it livable she uses the money from the sale of her first house to build a new one on the property that her son owns and has given her rights to through a life estate for which he holds the remainder rights. The mother has now built a house on the piece of property, greatly increasing its value, at no expense to the son. The son, on the other hand, stands to gain from any sale made of the property. This will be the case even if the mother moves out of the house; most life estates apply only as long as the person is living on the property. Therefore, the property of the son has increased in value at the expense of the mother with no corresponding gain.

The quitclaim

Another way that a person can lose a life estate is by filing a quit claim. This is a type of deed that does exactly what its title implies; filing one means that the person doing so conveys ownership rights to the person who now holds the deed.

Life estates can seem appealing to people who want to build a new house but can´t afford the land to do so. It seems as though they are receiving free land to build their dream home on, which is one of the biggest expenses in home building. However, the person who owns the property will always regain ownership when the life term has expired. Life estates can work when an individual moves onto a property where the improvements already exist, but any further improvements will come at the expense of the life estate holder for the benefit of the original owner.

Note:Contact an attorney on all legal questions or legal issues. A real estate agent is not qualified to give legal advice or tax advice and is not licensed to give legal advice or tax advice.

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