Bob and Susan, an older couple with an adult son, own a big farm, where they hope to live the rest of their lives. Bob’s estate plan includes leaving the farm to their son John, subject to a life estate for Susan; Susan’s plan includes the same life estate arrangement for Bob.
A life estate is a legal arrangement that allows one person to have possession of property during his or her lifetime. The property then goes to another person or entity (such as a charity) following the death of the person who had possession during his or her lifetime.
At Geyer Law, the life estate arrangement is a useful tool in our estate planning “tool kit”. While estate plans can be as different as the many estate planning clients we advise, there are basically three situations that might lead to us considering using the life estate tool:
* Couples who own real estate together, particularly farm land. They wish to give someone the right to live on the farm and/or farm the land for that individual’s lifetime, but upon his or her death, they want someone else to receive the farm.
* Remarried couples where either the husband or wife has children from a former marriage. The goal is to have the real estate go to those children once both spouses have died.
* Couples (or siblings) who want their real property to go to a charity, but only after both of them have passed on.
Is the life estate a perfect tool for our estate planning attorneys to use with our clients? Not in every situation. Careful consideration must be given to the use of life estates. At Rebecca W. Geyer & Associates, we remind clients that one big disadvantage of a life estate is that it cannot be adjusted after-the-fact (meaning after the first spouse or partner has died or become mentally incapable of changing the plan).
For example, what if:
* the “life tenant” (Bob or Susan in our example) needs to move into a nursing home and can’t stay on the farm?
* the “remainderman” (son John in our example) later decides he doesn’t want to own a farm and would rather inherit financial assets?
* Something changes about the charity and it no longer suits the intent of the life estate grantors?
Would a life estate be a useful planning tool in your situation? That’s a question best explored with the help of an estate planning attorney. A thorough discussion of your goals and concerns ensures that the right tools are utilized to accomplish your objectives.
– by Ronnie of the Rebecca W. Geyer & Associates blog team
