Using An Enhanced Life Estate Can Help You Avoid Probate (And Has Other Benefits)
An enhanced life estate is a type of joint ownership that allows someone to live in their home during their lifetime and transfer it to a beneficiary upon their death. This can be a valuable tool in estate planning, as well as in avoiding probate or the probate courts. You can create a life estate in property you already own or property you are planning to buy in the future—but there are some things you should know first.
What is a Life Estate?
An enhanced life estate allows you to share the ownership of property with someone else without the other person having to buy the property (or their portion of it). In legal terms, you are the life tenant, and the other person is the remainderman, also known as the beneficiary. Although the remainderman does have a legal remainder interest in the property once the life estate is created, it isn’t a right to full co-ownership. The remainderman doesn’t receive full ownership until the life tenant dies.
As the life tenant, you still can do whatever you want with the property, the same way as if you owned the property outright. The Life Tenant does not need approval from the remainderman to convey or mortgage the property. That means you can buy, fix, repair, modify, mortgage, lien or sell the property as you see fit, and you can acquire any income the property may generate, such as from charging rent.
Life Estates and Wills
One large benefit of using an enhanced life estate is that if the life tenant should pass, the interest in the property transfers to the remainderman. This is done automatically, so there is no need to probate the property or be burdened spending time, effort, financial resources, or other challenges that a probate action could entail. A certified short form death certificate (without cause of death) will need to be recorded along with a cover letter indicating the legal description of the property. After the recording of the cover letter and certified short form death certificate, the remainder interest will automatically be granted title to the property.
This also means that for the purposes of calculation of the value of your estate, that property isn’t counted in the value, having automatically passed to the remainderman. This can lower your tax burden or put you under the value cap that even requires you go through the probate process.
This avoidance of probate is one reason that a life estate is better than a will, where you could still pass your property to someone else, but the will would have to be probated.
There are also tax benefits to having an enhanced life estate. The new owner of the property (the remainderman, if and when you pass away) would only be taxed on the value of the property as of its most recent sale price—not on its current fair market value price, which this can represent a significant savings.
You can purchase property with a remainderman (creating an enhanced life estate), or you can create a new deed that adds the remainderman onto existing property. Of course, there are always pros and cons based on your specific situation and needs, so always consult with an attorney and accountant before simply creating an enhanced life estate in property.
Do you have a real estate law case or probate issue? We can help. Contact the Tampa real estate lawyers at Gilbert Garcia Group, P.A. today.