Even those who have made sure all their beneficiaries are included in their estate plan often forget about their home. Having a beneficiary in a will does not automatically mean that the property will go straight to the children. For example, if there is a mortgage or costs for its upkeep, it might leave the heirs in dire financial straits, particularly if they are not able to sell it.
One tactic that can be useful is a life estate.For testators who do not want to set up a trust, a life estate can be beneficial. The person who is passing along the property will be the life tenant and keep the right to the home until death. After that, the property will transfer to the remaindermen. These are the stated heirs. This is a strategy for people or couples who would like to make certain the both parties can stay in the home for their entire life if they choose to.
The life tenant retains responsibility for the costs of the home such as paying the mortgage, taxes, insurance and its maintenance. The remaindermen can cover all or some of these costs. It is important to remember that despite the property still being in the life tenant's control, there is a limit to that control. When the remaindermen has been added to the deed, they cannot be removed without their consent. The property cannot be sold without agreement from the remaindermen. All parties will share the proceeds if the property is sold.
A life estate will mix the finances of the life tenant and the heirs, so if there are any problems such as a divorce or a bankruptcy, there could be a lien. With the life estate, the person will have the opportunity to stay in the home and ease the process of managing the property after death. Since the depletion of estate after the death of a loved one can be difficult and a life estate can be complicated, having assistance from an attorney who can help address testator and beneficiary concerns is key. Those thinking about a life estate should consult with an attorney before moving forward.
Source: Huffington Post, "An Overlooked Estate Planning Tool If You Don't Have a Trust: The Life Estate," Bradford Pine, April 5, 2017