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NS-Life Estates Breakdown
Jan L. Warner & Jan Collins

Question: First let me say I always read your column and find it very informative. I have been looking on the Internet to tell me about Life Estates. I would like to put my condo in my two children’s names and live here as long as I live. What are the pros and cons of doing this. I am 61 years old, on disability and plan on living here until I can no longer take care of myself or can't afford it. Can you direct me to a website that can answer my questions. There are so many websites I'm not sure which ones I should rely on for correct information. Thanks for your help.

Answer: We wrote about some of the dangers life estates last year, but your situation is much different. First and foremost, while there are millions of Websites on the Internet (including ours at www.nextsteps.net), the answer you seek should not, in our opinion, be gleaned from any Website. In our opinion, you should secure information from a lawyer knowledgeable in this area who has had the opportunity to secure from you not only your reason for gifting a remainder interest in your home, but also your other financial resources, whether you have long term care insurance, whether there is a mortgage on the condo, and other relevant data.

A life estate describes your ownership of real estate during your natural life which automatically ends at your death. As the life tenant, you have the right to live in the property for as long as you live. During this time, you are prohibited from committing “waste,” that is, from damaging or devaluing the condominium because, in effect, your ownership interest is not permanent, but only temporary while you are alive. Therefore, you are generally responsible for taxes, insurance, repairs, and upkeep to the property from your pocket.

At your death, the condominium will pass automatically to your children outside the probate process, and they will own the property in equal shares.

Pitfalls are replete: 1) By transferring the property to your children subject to your life interest, you will be making gifts to both children. Based on your age at the time of transfer, federal tables provide the percentage of the condo’s value that you are gifting to your children. If the value per child exceeds $13,000 this year, you will be required to file a gift tax return next April even though no taxes will be due. 2) If you go into a nursing home within five years of the date of transfer and have no money or long term care insurance, you will not qualify for Medicaid until the transfer penalty is resolved. 3) If either of your children dies before you, their spouses or children may own that child’s interest. 4) If you wish to sell and move, without the signatures of both children, you won’t be able to do so, especially if a child predeceases you. And if you do sell, each child will be entitled to their share of the proceeds. Suggestion: See a lawyer.


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