What Is A Life Estate?

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What is a Life Estate in real estate?

A life estate is a legal agreement between two people that gives one person the right to use and live in a property for the rest of their life, while the other person retains full ownership of the property.

This could be thought of to pre-gift your home to your heirs while still retaining joint ownership.

It's an important consideration during estate planning, so let's take a closer look at how it works!

How does life estate work?

When the creator of the life estate (the grantor) signs a life estate, they are in effect passing part of the ownership of a home to another person.

The agreement stipulates that the grantor can continue to live in and use the property for as long as they like. Once the grantor dies, full ownership of the property passes to the heir.

One of the benefits of a life estate is that it allows the grantor to avoid probate. Probate can be a lengthy and expensive process, so avoiding it can be a big plus.

Another benefit is that it gives the grantor peace of mind knowing that their property will go to their heirs as they intended.

How to create a life estate

If you're interested in creating a life estate, the first step is to consult with an experienced estate planning attorney.

They can help you determine if a life estate is right for your situation and walk you through the process of creating one.

Drawbacks to a life estate

Of course, nothing is perfect and there are a few drawbacks to life estate agreements.

  • It's important to remember that the grantor does not have full control over the property anymore. While they can continue living in it and using it as they see fit, they can't make any changes to the property without the permission of the heir. This can be a big downside if the grantor wants to make changes to the property, but the heir does not agree.
  • The heir may not be able to get a mortgage on the property until the grantor dies. This can be an issue if the heir needs to access the equity in the property for some reason.

Overall, life estate can be a great tool for estate planning. It has some benefits and drawbacks that should be considered before entering into an agreement.

As with anything else, it's important to consult with an attorney or financial advisor to make sure that a life estate is a right choice.

Example of Life Estate

To illustrate how a life estate works, let's say that John and Mary are a married couple. They own a home together and they have two children.

They decide to create a life estate agreement so that their children will inherit the house when they die.

Under the agreement, John and Mary can continue living in the house and using it as they please.

They can also make changes to the house if they both agree to it.

However, once John and Mary die, full ownership of the house will pass to their children.

The children will then be able to do whatever they want with the house, including selling it or passing it down to their own children.

A life estate can be a great way to ensure that your property goes to your heirs as you intended.

Conclusion

A life estate can be a helpful tool in estate planning. It allows the grantor to avoid probate and gives them peace of mind knowing that their property will go to their heirs as intended.

However, there are some drawbacks to consider before entering into a life estate agreement.

These include the loss of control over the property and the potential for the heir to not be able to get a mortgage on the property until the grantor dies.

Overall, a life estate can be a great way to protect your property and provide for your heirs.

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