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The term Life Estate seems like an oxymoron, and may be confusing to someone who is not familiar with the term. A “Life Estate” is a legal arrangement that allows a person to have possession of property during his or her lifetime, and after his or her death, for another person or entity to gain ownership of the property.
If a person holds property in a life estate, he or she retains the right to occupy, possess, and enjoy the property. However, when he or she dies, their interest in the property automatically terminates. As a result of this termination, a life estate holder cannot transfer his or her interest in the property through a will.
While there are many reasons a life estate is created, this legal arrangement is commonly used to keep property from being transferred through the process of probate.
For example, Mark owns his home individually and has a will. When Mark passes away his will must be probated through the Surrogate’s Court before ownership of his home can be transferred to the beneficiaries named in his will. In order to avoid this process, Mark could execute a new deed that reserves a life estate in the home, with a remainder interest to his beneficiaries. If the deed is executed properly, the home will automatically transfer upon his death.
During Mark’s life, he will continue to pay all costs associated with the home (i.e. insurance and property taxes) as though he is the sole owner. Moreover, the individual or entity that Mark has given the remainder estate does not have any right to the property, whatsoever, until Mark, as the life estate owner pass away.
It is also common for one spouse to use life estate to ensure that their marital home becomes the property of the surviving spouse upon the first spouse’s death.
Importantly, a life estate cannot be revoked. So, if you set up your ownership of a property in a life estate, you cannot sell or otherwise dispose of the home.