Estate planning raises complex questions like what happens to my car when I die; what happens to my money; what do I do to ensure my remains are taken care of according to my wishes? All of these are excellent questions; however, one of the most notable is what happens to my home? A potential solution to this question is putting your home in a life estate.
A life estate is when you own your home jointly with whomever you want your home to transfer upon your death. A life estate allows for you to reside in your home as a life tenant until you pass, after which title transfers to the other owner (the remainderman).
One of the remarkable things about a life estate is that you maintain complete control of your property until you die. This means that as long as you live, the remainderman cannot force you out of your home via sale, ejectment, etc. Basically, until you die, you maintain all ownership rights (i.e. property tax obligations, maintenance obligations, etc.).
In addition to preserving control of your property, a life estate allows you to choose to whom your property transfers. Oftentimes, real property goes through probate, eventually resulting in being sold off. Maybe your home has sentimental value for your family. Maybe your home holds special memories for friends. A life estate is a great way of preserving those memories and transferring the property to those who will keep those memories alive.
A life estate also offers potential tax breaks. Upon your death, taxes for the reaminderman will be on a stepped up basis, meaning taxes are based on the value of the home at the time of your death, not the current property value. If you know anything about the Baldwin and Mobile County housing market, this is a major bonus!
Although a life estate serves as a way to avoid probate and control to whom your property transfers, there are some points to consider. A potential drawback is if prior to your death, you decide to sell your property, you must obtain the consent from the remainderman (because you jointly own the property). Among other things, this can cause controversy if the remainderman pre-deceases you, resulting in their interest transferring to their estate; you have a falling out with the remainderman; or the remainderman is part of a contentious divorce.
Despite the drawbacks, a life estate is a fantastic option for your end of life plans. For more information or guidance on your estate planning needs, give us a call at 251-621-1555 to schedule a consultation.