A life estate deed is an estate ownership arrangement, by which the owner gifts or sells to someone, a remainder interest in a piece of real estate property. The owner of the property holds a life estate in the real estate, which includes the right to live in the property, use it and even profit from it, as long as the life estate holder (that is the owner) is alive. The remainder interest holder, the buyer, can’t interfere with the life estate holder’s use of the property, while they are living.
What are the precautions for me to take if I’m entering into a life estate deed with a stranger— Is it even a wise investment to be gone with?
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The possibility that signing a life estate deed may give you less than you bargain for. While a life estate deed is one of the quickest and cheapest ways to transfer real property to another person while still holding onto some of the benefits of ownership, it does have its disadvantages. These disadvantages make it risky. Your life tenant may decide they don’t want to live in the house anymore and prob you want to sell it off, but they can’t sell or mortgage the property unless you as the remainder man agrees to transfer it back to them. During the period of living there, the property may appreciate more and the life tenant starts acting funny. Also, what happens in the case where you die before the life tenant? There are lots of issues with life estate. If you’re going to be taking up such deed as a remainderman, be sure to make it entirely legal.
Many individuals use life estate deeds in an effort to avoid probate and eliminate the need to hire an attorney to prepare a last will and testament, or a trust. Unfortunately, when someone uses a life estate deed, they lose control over the distribution of their property when things turn out differently than expected.
The problem with life estate deeds is that the person transferring ownership loses control of the property when the deed is signed, despite the retention of the life estate. After the life estate deed is signed and recorded, the life tenant is no longer able to transfer, sell or mortgage the property without the joinder of the remainderman.
More importantly, from the estate planning perspective, the life tenant has given up all control over what happens to the property in the event of the death or disability of the remainderman, or if the remainderman is embroiled in a divorce or other creditor problem when the life tenant dies. The real property will automatically transfer to the remainderman without the ability to change the remainderman or protect the remainderman from creditors.