One of the most important aspects of estate preparations is figuring out what to do with one’s home and property. This approach can ultimately protect homeowners from having the property taken to pay for long-term … A life estate lasts for the lifetime of its creator. In fact, one of the primary reasons to use a trust is to avoid probate and issues relating to a will. CFP Johanna Turner of Milestones Financial Planning LLC said it’s important to remember that a life estate and an irrevocable trust are not necessarily an either-or scenario. What Is the Difference Between a Trust and a Life Estate? Grantor Trust Rules outline responsibilities of the trust's creator for income and estate tax purposes. However, once the owner of the property conveys her interest to someone and keeps a life estate, she loses the flexibility to sell the property or make changes. A trust is a fiduciary relationship in which the trustor gives the trustee the right to hold title to property or assets for the beneficiary. Creating a life estate requires executing a deed that transfers ownership of the property to the grantee, yet gives the owners the legal right to live on the property as long as either of them lives. Both have their advantages and disadvantages, but a mix of the two can often be the best solution. Life estate transfers can also shorten the lag time for receiving Medicaid or other important benefits. A life tenant can sell a life estate interest to anyone who is willing to buy it. A life estate deed can feel like a relief to some peo… “You can put something into an irrevocable trust (like a residence) and retain a life estate,” she said. In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. “You are ‘irrevocably’ transferring ownership of your house to the trust, but you still retain control. The life tenant of the home, the person retaining the life estate, places the name of his beneficiary on a life estate deed. We're not sure what problems you've seen. Whether you’re preparing your estate to pass on to loved ones or helping guide a parent in that process, estate law can be tricky and unfamiliar ground. Transferring large assets, such as a home, into a life estate or irrevocable trust can help an individual qualify for Medicaid. That beneficiary is known as the “remainderman,” and is the co-owner. She can’t sell the property or damage it in any way. The property remains in the trust with a different trustee until the terms of the trust instrument are carried out by the trustee. Ameliorative Waste. A life estate allows someone to live in a house until their death. Otherwise, those funds will be counted as part of existing assets when determining Medicaid eligibility. This means you cannot start an irrevocable trust shortly before applying for Medicaid if you want to receive those benefits. In this case you are selling only your interest in the home -- the right to live there for the rest of your life, and not for the lifetime of the buyer. By signing up you agree to our Terms of Use and Privacy Policy, Discussion of news topics with a point of view, including narratives by individuals regarding their own experiences. You mentioned the life estate owner can still sell the property, but that is incorrect. Revocable trust: Also known as a living trust, a revocable trust can help assets pass outside of probate, yet allows you to retain control of the assets during your (the grantor's) lifetime. Trusts are a good way to provide for heirs, and to make sure money is used based on your wishes. He or she will have a copy of the trust and, as the trustee and beneficiary under the trust, shouldn’t have any problems conveying ownership to a buyer. This would be the best option. Most frequently, the person signing is the person who set up the trust. A life estate deed is by far the easiest way to go. Improving life estate property is also considered unlawful and is known as ameliorative waste. Life estates and irrevocable trusts are used in estate planning. It would still allow the parents to apply for Medicaid and not have the property count in their assets, but they would remain the sole decision-makers for the house. Trusts are just one way of dealing with properties, and if you prefer the life estate method, you're free to tell people to use it. The Massachusetts Medicaid Regulations specifically define a life estate as follows: ―[A] life estate is established when all of the remainder legal interest in a property is transferred to another, while the legal interest for life rights to use, occupy, or obtain income or profits from the property is retained.‖ A Life estate and an irrevocable trust are two different methods to go about this, each with its own advantages and disadvantages. LIFE ESTATES. $1.00). Life estates split ownership between the giver and receiver. Ensuring property is transferred to the right party when the time comes is a key aspect of estate planning. In legal terms, it is an estate in real property that ends at death when ownership of the property may revert to the original owner, or it may pass to another person. The person holding the life estate — the life tenant — possesses the property during his or her life. The deed includes a provision stating that the parents “retain the right to use and occupy the property during their lifetimes,” a … Life estates are not commonly used, but they can be a useful tool in some situations. They also can play an important role in Medicaid planning. A life estate is an agreement whereby an individual’s interest in property is limited to that individual’s life. You mentioned that the life estate owner can still sell the … A life estate is a form of joint ownership of real estate. A life estate is property that an individual owns only through the duration of their lifetime. The offers that appear in this table are from partnerships from which Investopedia receives compensation. And life insurance is one of the best ways to fund a trust. Using a life estate deed allows you to avoid probate. Once an irrevocable trust has been created, the trustee cannot take back control of the trust. 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