What are the Benefits of Owning a Life Estate?
When people think about estate planning, life insurance and wills are typically the first things that come to mind. However, there is another option that can be just as effective – a life estate.
A life estate is a legal agreement in which a property owner transfers ownership of a property to another person for the duration of their lifetime. This can be a great option for those who want to avoid probate and ensure their heirs receive the property when they die. In addition, a life estate can also provide some tax benefits.
What is a Life Estate?
A life estate is a type of ownership arrangement in which the owner of a property (the “life tenant”) has the right to use and possess the property for the duration of their life, and after their death, the property passes to another person or entity (the “remainderman“). The life estate can be created by transferring an existing property interest to a life tenant, or by creating a new life estate in a property that did not previously have one.
Essentially, it is a type of trust that allows you to keep living in your home until you die, at which point the property goes to your heirs.
Reasons to Consider a Life Estate
There are several reasons to consider a life estate. Below are the main ones.
- Avoid probate: The avoidance of probate is a common benefit of creating a life estate in an estate plan. When an individual holds title to the property as a life tenant, that property will avoid probate when the individual dies. This is because the property immediately transfers to the remainder beneficiary, bypassing the need for a court process to determine the deceased’s heirs and distribute the assets accordingly.
- Control over your property during your lifetime: The holder of a life estate has the right to use and control the property during their lifetime, but the property reverts to the beneficiary of the estate when they die. This allows the holder of the life estate to use the property without having to worry about it being taken away from them, while also ensuring that the property passes to the desired beneficiary of the estate when they die.
- Tax benefits: If, for example, a “life tenant” were to pass away, the house would be valued for tax reasons according to the date of the “life tenant’s” passing rather than the date on which the house was originally purchased. This normally means paying substantially less in capital gains taxes when you sell.
How Do You Decide if a Life Estate is Right for You?
A life estate might be a good option for you if you want to ensure that your property will go to a specific person after your death, maintain some control over the property during your lifetime, or avoid probate. To discuss the specifics of your case and then decide if a life estate is right for you, speak with an estate planning attorney in Florida.