Forming a life estate lets you pass on property to the next generation without initiating probate or sending your heirs to surrogate’s court. In a city where property commands a premium, life estates can make it much easier to give your loved ones a step up in New Yorks’ hyper-competitive housing market.
Here, the estate planning attorneys at Landskind & Ricaforte Law, P.C. explain why you might benefit from a life estate and how it could fit into your Brooklyn estate plan.
Life Estates in New York City
A life estate is a type of legal arrangement where interest in real property is divided between two separate parties: the life tenant and the remainderman—the person who receives ownership of the property after the life tenant dies.
After establishing a life estate, the life tenant will retain the right to use and access the property for the remainder of their lifetime. Upon their death, the life tenant’s interest will transfer to the remainderman, who may then take control of the property without going to probate.
Property interests can be distributed among more than one remainderman in a life estate. These remaindermen will almost always be named in advance.
Life estates are a practical tool for New Yorkers who want to continue living in their homes but are unwilling to risk their property in surrogate’s court.
Using a Life Estate in Your Brooklyn Estate Plan
Life estates are sometimes considered a simple alternative to living trusts. In New York, forming a life estate is typically a straightforward process that, under most circumstances, includes doing the following:
- Talking through your options with our legal life estate planning lawyers
- Deciding which properties you want to include in your life estate
- Determining who you would like to name as your remainderman or remaindermen
- Drafting a life estate deed that contains a detailed description of the property, your name and the name of your remaindermen, and the terms of transfer
- Notarizing the document and submitting a copy to your county recorder’s office
Once your life estate has been drafted and executed, the life tenant and the remainderman will be entitled to certain rights.
The Rights and Responsibilities of the Life Tenant
The life tenant is almost always the original owner of the real property. After the life estate has been established, the life tenant will retain the exclusive right to use and access the properties included with the deed. The life tenant may:
- Live on the property
- Rent the property to somebody else
- Receive and enjoy any income derived from the property
The life tenant has many rights but must also fulfill many obligations. Life tenants are, for instance, required to maintain the property and pay taxes on its value. If they wish to sell the property or use it as collateral, they must first obtain permission from their remainderman or remaindermen.
In other words, life tenants have a “lifetime interest” in their property. It is theirs to use and enjoy for their lifetime, but they must preserve and protect the property so their remainderman can someday use and enjoy it.
The Rights and Responsibilities of the Remainderman
The remainderman receives the remainder interest when the life tenant dies. So long as the life tenant is alive, the remainderman has no right to access, use, or enjoy the life estate. They may object if the life tenant does not care for the property or pay its taxes, but they can’t force a sale or petition the court to order an early move-in.
Although the remainderman has few rights during the life tenant’s lifetime, they are entitled to their share in the property upon the life tenant’s death. They may receive their interest directly and without any need to open a probate case.
5 Big Benefits of Establishing a Life Estate
Life estates can have big benefits. Here’s how creating and executing a life estate could help you protect your family’s peace of mind:
1. You Can Continue Using the Property for the Remainder of Your Lifetime
You don’t have to change your habits for a life estate. If you establish a life estate, you can continue living at home for as long as you like. You can rent it out or make routine renovations whenever you see fit. The only significant limitations you’re likely to face are your ability to sell the property or use it as collateral.
2. You Can Use a Life Estate to Minimize Risk
Your life estate is usually off-limits to estate creditors. Since neither you nor your remainderman have a full interest in the property, your creditors cannot usually file claims against it. In other words, even if creditors assail your estate in probate, they will not be able to take your life estate property away from your heirs.
3. Life Estates Could Improve Your Chances of Getting Medicaid Benefits
If you think you or your spouse may need Medicaid to pay for the costs of assisted living, a life estate could be used to meet New York’s Medicaid limits. By transferring the remainder interest to an heir, your property won’t typically be counted as an available or liquid asset.
However, Medicaid has a look-back period, meaning your life estate should be established long before you think you may need benefits.
4. Your Heirs Have a Safe Inheritance
Your life estate sets firm terms for an inheritance: it protects your home while you’re living in it and could even protect your heirs from having their rights to the property challenged by a third party.
5. Your Life Estate Won’t Be Affected by Probate
Probate is an intense, time-sensitive process that can tie up your properties in court and sometimes makes it much more difficult for heirs to receive an inheritance.
One of the most significant advantages of incorporating a life estate into your New York estate plan is that it allows any included property to bypass the probate process.