A life estate is a way to transfer ownership of your home to another person while retaining the rights to live on the property for the duration of your life; it is also a way to maintain ownership of your home while granting another individual the right to live there for the duration of their life. As you age, a life estate can mean that you will still be able to live in your home for the remainder of your life while still being responsible for maintaining the property and any other costs associated with the property (e.g., taxes, insurance, etc.). Upon death, real property is immediately transferred to the person designated as remainder owner in the life estate.
The advantages of a life estate include:
- Avoidance of probate—a life estate enables your property to be transferred to your heirs—that is, whoever you named as remainder owners in the life estate—without the cost and hassle of probate.
- Simple to establish—life estates are relatively simple to establish when compared to other estate planning tools like trusts.
- Maintain right to live in home—life tenants have absolute right to occupy the life estate property during their lifetime.
- Protection from heirs’ (the remainder owners’) legal problems—life estates are protected from remainder owners who face bankruptcy, divorce or other legal matters.
- Income tax advantage for heirs—heirs avoid capital gains taxes when the home is sold after the life tenant’s death.
- Provide for a loved one’s well-being without losing interest in the home—you may purchase a home for a friend or relative and give them life tenant rights while you maintain ownership. Upon the life tenant’s death, the home will be included in your estate for your heirs.
- Protection from Medicaid liens—life estates must be established longer than five years before seeking Medicaid assistance to avoid liens on the home.
Life estates may be created by deed or will. Depending on how your life estate is established, it may be subject to both gift and estate taxes. With careful planning, a qualified New Mexico estate planning attorney can help you avoid this double tax and make sure that your real property transfers to the person/people you desire without probate.
As you develop your estate plan, it is important to realize that a life estate is not the best tool to use for every person or family. An experienced estate planning lawyer should be able to inform you of the various estate planning tools available to you and help you select the best mechanisms for maximizing the inheritance you want to leave your heirs.
Contact our skilled New Mexico estate planning attorneys today to discuss life estates and other estate planning tools today. We are proud to serve clients in Albuquerque, Farmington, Las Cruces, Roswell and Santa Fe!