Retaining a Life Estate
By Carl A. Glad, Partner, Law Offices of Kurt M. Ahlberg
Many clients ask whether they should consider transferring their home to their children as part of their Estate Planning. They rightly assume that this will take the home out of their Estate and that the home will no longer be subject to the Probate Process. Those same clients are also nervous about giving away their home or are worried about the impact of this transfer on a potential Title 19 application. This is when I explain a Life Estate to my clients.
A Life Estate is technically an interest in property for the period of your life. You can transfer a future interest in your property while retaining your current interest. More simply, you can convey property to someone else, like your children, while reserving your right to use the property for your life. A simple deed that reserves a life use or life estate for you will accomplish this end.
There are many benefits to this type of transfer. First, the house will not become part of your Estate. The house will automatically belong to your children at your death.
Second, you continue to retain control over your property. Your children, or the person with the future interest, cannot remove you or sell the house from under you. Additionally, you also retain any real estate tax benefits you may currently receive from your municipality.
Third, the tax implication for your children is lessened. When you transfer a property while retaining your Life Estate, you continue to own the property for tax purposes. The value of the home attributed to your children will be from the time of your death. Without retaining the Life Estate the value of the home attributed to your children will be at the date of transfer.
Finally, your transfer may have a limited impact on a Title 19 application. It is important to discuss your situation, including the potential to apply for Title 19, with an attorney to determine if a Life Estate would be in your best interest.
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