how to create a life estate
there are only a few steps involved in creating a life estate alternatives to a life estatea life estate is an excellent tool for securing your assets to pass on to your beneficiaries and bypass lengthy probate but it isn t the only option available you can also create a life estate and medicaidmedicaid is a state program that ensures that people who must move into a long term care facility can receive the care you can t qualify for medicaid if you own more than your state allows unless you meet certain specific conditions medicaid also commonly seeks reimbursement after you die from any estate you may leave it commonly targets a recipient s home because this is generally their most valuable asset medicaid might place a lien on the house or try to force its sale to recoup the cost of your long term care the home is no longer an asset of the individual s estate under a life estate this shields it from lawsuits including medicaid estate recovery 5types of life estatesthere are two types of life estates traditional and enhanced the enhanced version is typically referred to as a lady bird deed commonly thought to have originated when president johnson transferred property to his wife lady bird johnson when he died the practice is much older than that however 6the enhanced version differs from the traditional only in that the life tenant can sell the property or take out a mortgage against it without the remainderman s consent and it can be revoked advantages and disadvantages of life estatesthe most notable advantage of a life estate is that it simplifies the transfer of a home to the next generation the probate process may delay the transfer if the home is included in the homeowner s will the transfer is automatic with a life estate when a death certificate is filed there are potential tax benefits in addition to legal benefits a potential legal disadvantage exists as well however the life tenant may become involved in any legal problems that a remainderman incurs a lien could be filed against the parent s home if a parent and a child have created a life estate and the child is pursued for nonpayment of taxes creating a life estate is a serious and binding decision for a homeowner in any case they re giving up the option of selling or mortgaging the home unless the remainderman agrees they re making an irrevocable choice of an heir to the house simplifies the transfer of a home to the next generationprotects the home from debtors of the deceasedallows older homeowners to retain the benefits of home ownershipmakes the owner vulnerable to debt actions brought against the remaindermancan t be undone easily if the owner s plans or circumstances changerestricts owner s ability to mortgage or sell propertylife estate vs irrevocable trustlike a life estate an irrevocable trust is often a tool for estate planning the irrevocable trust removes assets from the grantor s estate specifically the grantor relinquishes all rights to some assets and income transferring them to a trust the assets may be cash investments or life insurance policies the trust s beneficiary may be a spouse the grantor s children or a charitable organization a life estate is also irrevocable the life tenant can t alter the agreement without the consent of the remainderman after a life estate deed is filed an irrevocable trust does have its uses however it can reduce a person s wealth on paper transferring that wealth to family members it also removes some of the person s assets from an estate eliminating them from the probate process a trust can be a valuable strategy for a professional who s vulnerable to lawsuits such as a physician it protects some of their assets because they relinquished ownership of them when they were placed into the trust 7example of a life estatea life estate agreement is usually undertaken as an aspect of estate planning an older couple might consider a life estate arrangement as an alternative to naming a beneficiary in their wills a life estate agreement gives them the right to stay in their home for the rest of their lives then an adult child or children will automatically take title to the property when they re both deceased a widowed homeowner who can no longer live alone might create a life estate agreement with an adult child as the remainderman the parent and child now co own the home but the parent retains lifetime rights to use it both ensure that home ownership will pass to the child without delay or interruption 