A life estate deed is a planning tool that is a part of your overall estate plan. With this type of deed, an individual can deed real estate to someone, but reserve a life estate, which means that they have the right to occupy the property until death. With death, the property will then pass to the beneficiaries. Read on for a breakdown of the life estate deed, so that you can decide if it’s a good option for you.
What’s a New York Life Estate Deed?
To understand how this works, it’s helpful to explain the parties involved. Multiple parties can own property simultaneously. The party that has an ownership interest in property for the duration of their life (life estate) is called a life tenant. They can use and possess the property and are responsible for the maintenance costs for as long as they live.
After the life tenant dies, their ownership interest passes on to the other party, the remaindermen. While the life tenant can possess the property during their life, they are legally accountable to the remainderman and can’t sell or waste the property without the remaindermen’s permission.
Benefits and Advantages of a Life Estate Deed
- The life tenant has the legal right to stay in the house for as long as they live.
- When the property is transferred, it immediately goes to the remaindermen without going through probate.
- The property receives an entity called a “stepped up basis” when it passes to the beneficiaries, which means that when the beneficiaries sell it, they would generally pay less in capital gain tax than if the property had been gifted to them during the property owner’s life.
- Can help for Medicaid eligibility for the purposes of paying for nursing home care. Because there are limits to the amount of assets you can own, the deed can assist with getting property out of your name.
Life Estate Deed vs. Trust
With an eye toward protecting their home, a homeowner might wonder whether they should consider a life estate deed or create an irrevocable trust. A transfer of a deed into an irrevocable trust transfers the title of the property to the beneficiaries of the trust after the death of the trust creator. Similar to a deed with a life estate, the trust creator keeps the right to live in the house and is responsible for household expenses.
Both options let you retain specific rights concerning the lifetime use of the property including tax benefits associated with ownership, such as enhanced star benefit, Veteran’s benefit, and capital gains exemptions.
However, there are benefits that the trust offers that the life estate deed doesn’t have, including more flexibility. For instance, if a life estate deed needs to be transferred back to the property owner and they need to get the property back into their name.
Get Help with a Life Estate Deed from a New York Attorney
Depending on your specific situation, a life estate deed may be a good fit for you. There may be reasons to consider this if you want to qualify for Medicaid to qualify for nursing home care. These laws are very complex and difficult to navigate. This is why you may want to talk to one of the MOWK Law New York estate planning attorneys who specialize in this subject area. Contact us right away to get started!