A life estate is created when someone gives the current rights to real estate to a third party (or retains these rights themselves), while giving the rights to that same piece of property to someone else after the holder of the current rights passes on.
The holder of the current rights has certain duties, including the duty “not to suffer waste.” This means that the current holder must pay the property taxes and do ordinary maintenance, to ensure that the property holds its value.
Ordinary maintenance that a life estate holder must do, such as putting on a new roof, putting on new siding if the current siding fails, putting in new windows when needed, and replacing frost damaged plumbing, or replacing flooring that is damaged after a water heater fails, or a sewer backs up, can be unexpected and very expensive.
Life estates can be quite a burden on an owner who cannot afford to maintain the property.
Of at least equal importance, life estates can cause significant issues if a life estate holder ever needs long term care and Medicaid.
Life estates are subject to recovery by the State for Medicaid purposes after the life estate holder dies. No other creditor can force recovery against property that was subject to a life estate after the life estate holder dies. The government writes the rules for Medicaid, however, and the government can recover against property that was formerly subject to a life estate holder if the life estate holder received Medicaid during their lifetime.
Giving away a life estate (including a life estate to property that the holder can no longer afford to maintain) can also create a period of Medicaid ineligibility for the life estate holder.
Often a life estate is not something that is wise to create.
If there is a reason why a life estate seems wise, a good lawyer can often create something that is less than a full life estate, which accomplishes most of the goals of the person who is thinking of creating a life estate, while limiting the negatives that often flow from the creation of a life estate.
Steven A. Heinrich
Divorce & Custody
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