Advantages and disadvantages of a Life Estate
One method to divide property is by setting up a life estate. Say, for example, you want to leave your house to someone, however when that person passes away, you desire the house to pass to another individual, instead of to somebody your initial beneficiary chooses.
The premise behind a life estate, a tool typically utilized where property is concerned, is that the preliminary recipient (who is often referred to as the life occupant) is approved using the property for the remainder of their life. When that individual passes away, the property passes to the rest beneficiary.
Here is one example: You are separated and remarried. You choose to provide your brand-new other half a life estate in your house. When she passes away, the house passes to your children from your previous marriage. That method your other half belongs to live, and your kids ultimately inherit the home.
As you can tell, life estates are one way to divide the interest in your properties– but a life estate can develop problems as well.
Let’s use real estate as an example. What occurs if:
u2022The house requires repairs or major upkeep– who pays? If the life renter is responsible but can’t pay for the bill, then what happens?
u2022What if the life occupant wishes to sell the property? Will the Trust use the earnings of the sale to acquire a new house, and will that home pass to the rest beneficiary?
u2022What if the life occupant needs to move into assisted living or into a nursing home?
As you can tell, life estates need to be carefully crafted to make sure a variety of considerations are taken into account. And no matter how hard you attempt, a life estate can cause tension in between beneficiaries, since both celebrations have an interest in the property or property– and both parties may disagree on making use of or care of that asset.