Got Family Quick Bits: Life Estate

Hello, this is Got Family and I am Carey Berger, and today we’ll talk about a life estate.

You may have heard of such a thing; someone says, I have a life estate in a house. Okay, what does that mean? What that means is they have every right that looks like ownership during their lifetime. For as long as they live they get to treat it as their own in all regards, isn’t that wonderful? The difference is though when their life expires, or whatever the measuring life on this life estate is, when that measuring life expires, then their ownership ends. At that moment, it then goes to the hands of the remainder interest holder, which has it from then on. Let’s just keep it really simple and say that’s where it stops. Here’s the interesting part, I have a life estate in a house, and I don’t really want to live there. Could I rent it? Yes, I can. However, if I do, and I pass, guess what? The rent is now terminated. The rental agreement doesn’t exist anymore because I can’t rent something I don’t own it. I, nor my estate owns it anymore because it just transferred into the remainder interest holder. Based upon that, am I likely to be able to rent it comfortably? It gets a little more dicey at that point. Can I sell it? Sure enough, same answer though, and that is, I can sell it knowing that the second that I passed that is no longer theirs, and they didn’t actually buy it they just bought it for as long as I’m around. So, again it’s hard, as a practical matter, to make that happen. So, what is the value of a life estate? It does solve some problems to the extent that I know that I want to live in this house for as long as I live, and when I’m done I want it to go to my children. I name them as remainder interest, guess what? I’ve already effectuated the change. The transfer is theirs, they have it, I just get to use it. It feels pretty good. There are other tools that are available, and we should talk about that sometime if you’re ever into this place, but for now, let’s just understand what a life estate and remainder interest is, and think about it while were sitting here at the crossroads of business and family, I am Carey Berger.