Life Estate Laws

by Stephanie Reid
Life estate tenants can earn income on the property as a rental investment.

If you've been granted a life estate, you now hold an interest in property for the duration of your life. Once you die, you cannot pass this property onto an heir or charity. The person who granted you the life estate gets to choose how the property passes upon your death. During your life, you are generally permitted to use and enjoy the property as you see fit. However, certain rules apply to help ensure the property is not damaged or misused.

Proper Creation

If a life estate is not properly created, it could be defeated in a legal challenge by other potentially rightful owners. To be effective, the person giving the life estate, known as the grantor, must create a written deed specifically explaining the type of property interest created. The deed must state that the grantor is transferring the interest only up to the point of the grantee's natural life. The deed should clearly identify who is to receive the estate after the grantee's death, as there are no guarantees the grantor will still be around to make sure the property transfers. The individuals set to receive the estate after the grantee dies are known as "remaindermen."

Restrictions on Transfer

The grantor is only intending for the property to belong to the grantee for the duration of the grantee's life; after that, she wants the property back or wants to transfer it to another person. Life estates are not freely transferable, and any attempt to sell property under a life estate is void. In fact, an attempt to wrongfully sell property under a life estate will result in the property reverting immediately back to the grantor as this act constitutes a violation of the deed. In some life estate deeds, the life estate holder can sell the life estate with the understanding that the life estate immediately terminates upon the death of the original life estate holder.

Duties and Responsibilities

A life estate tenant is prohibited from damaging, altering or otherwise misusing the property during his lifespan. If the property is in need of upkeep or repair, the tenant is responsible for this maintenance. In addition, the tenant must tend to tax and mortgage payments and must maintain insurance on the property. If he chooses, the tenant can rent out the property and collect all the rent money for himself, unless this is prohibited by the specific life estate agreement.

Estate Planning

A life estate can be helpful for some people as they manage their estate planning. Elderly individuals can establish a life estate in their home and name a child or potential heir as the remainderman. In some jurisdictions, the value of the transfer is not calculated at fair market value but a lesser percentage of fair market value. Life estate transfers can also shorten the lag time for receiving Medicaid or other important benefits. They also can result in hefty gift tax consequences and are not always the best course of action for those with large, high-value estates.

Ameliorative Waste

Improving life estate property is also considered unlawful and is known as ameliorative waste. Improvements may be allowed if the remaindermen approve of the changes. If the remaindermen don't approve or the property is damaged, the life tenant is liable to the remaindermen for damages. Waste also includes failure to pay taxes or insurance on the property.

About the Author

Stephanie Reid has been writing professionally since 2007, with work published in the Virginia Bar Association's "Family Law Quarterly" and the "Whittier Journal of Child and Family Advocacy." She received her Juris Doctor from Regent University and her Bachelor of Arts in French and child development from Florida State University. Reid is admitted to practice law in Delaware and Maryland.

Photo Credits

  • Jupiterimages/Comstock/Getty Images