How Does A Life Estate Deed Work
The life tenant retains most of the rights and obligations of a homeowner. The life tenant can live in the home or rent it and is responsible for the taxes, insurance, and maintenance costs. Any tax benefits of homeownership go to the life tenant, too.
The life tenant does not have the right to sell the property or take out a mortgage on it without the agreement of the remainderman. The remainderman becomes a co-owner of the property but has no legal rights to live in it or use it until the death of the life tenant. Once a death certificate is filed, the life tenant can take possession.
What Is A Life Estate Deed In New York & Do I Need One
A life estate deed is a tool that can help with estate planning. With a life estate deed, people deed real estate to another party, but reserve a life estate, which means they have the legal right to occupy the property until death. Upon death, the property passes to the beneficiaries.
Life estate deeds can offer a number of advantages to people in different situations. First, the property does not have to go through probate instead, the property passes automatically to the beneficiaries at death. Also, the property receives something called a stepped up basis when it passes to the beneficiaries, meaning that when they sell it, they would typically pay less in capital gains tax than if the property had been gifted to them during the life of the property owner.
There may also be some reasons to do a life estate deed if you hope to qualify for Medicaid in order to pay a nursing home. In order to qualify for Medicaid to pay for nursing home care, there are limits to the amount of assets you can own. A life estate deed may be one way in which to get property out of your name in order to qualify. However, these rules are very complex, and you should consult with a New York Elder Law Attorney before attempting any property transfers on your own.
Although there are some great reasons to do a life estate deed, its not appropriate for everyone. If you anticipate the property will be sold prior to death, it may not make sense to do a life estate deed.
Selling The Life Estate Property
What if the co-owners later decide theyd like to get out ofthe life estate? The way out is to sell the property.
As long as the life tenant is alive, neither co-owner may sell the property unless they jointly agree to do so. If our life estate holder Ann wishes to sell, and Ashleys on board with the plan, these life estate co-owners will share the proceeds, in amounts calculated by the IRS . The IRS accounts for the current interest rates and a life tenant who still has a long life expectancy would get more value back from the sale than an older life tenant.
Here, as the property is sold while Ann is living, Ashley may be paying some rather high taxes on appreciation of the homes value that is, capital gains taxes. But what if Ann passes away, and Ashley later decides to sell? Ashley may have the benefit of a stepped-up tax basis, typically resulting in lower capital gains taxes.
Important note: Be sure your financialplanning accounts for any liens that will need paying off when selling theproperty.
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How To Fill Out Reservation Of Life Estate
US Legal Forms is a special platform where you can find any legal or tax document for submitting, such as New York Warranty Deed to Child Reserving a Life Estate in the Parents. If youre sick and tired of wasting time searching for suitable examples and spending money on papers preparation/attorney charges, then US Legal Forms is precisely what youre trying to find.
To experience all of the services advantages, you don’t have to install any software but just choose a subscription plan and register your account. If you have one, just log in and look for a suitable sample, download it, and fill it out. Saved documents are all kept in the My Forms folder.
If you don’t have a subscription but need to have New York Warranty Deed to Child Reserving a Life Estate in the Parents, have a look at the instructions listed below:
Now, complete the document online or print out it. If you are unsure regarding your New York Warranty Deed to Child Reserving a Life Estate in the Parents form, contact a legal professional to check it before you decide to send or file it. Start without hassles!
Lady Bird Deed Limitations
The lady bird deed is not advisable when there is a remaining mortgage on the property or the property is left to two or more remaindermen. When the property is left to two or more remainderman, their unanimous consent is required in dealing with the property. If they dont agree, they might go to court. When there is a remaining mortgage on the property and it is left to a third party, the bank may raise the due on sale clause which makes the entire mortgage payable upon transfer. This will cause undue hardship to the remainderman.
A lady bird deed is only recognizable in five states. If you are in a state that doesnt recognize a lady bird deed, there are still several documents available to help one achieve his/her purpose, whether it is Medicaid planning, Medicaid eligibility, or flexibility towards the transfer of property to the heirs. It is always best to consult with an experienced trust and estates lawyer to help you draft the necessary documents to achieve your purpose.
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Do I Need To Pay An Estate Tax
A home transferred via a Lady Bird deed contributes to the value of the homeowner’s estate for estate tax purposes. The property is considered to be an inheritance granted to your remainder beneficiaries, but only estates with values in excess of $11.58 million are subject to the federal estate tax as of the 2020 tax year.
Several states also have estate taxes, however, and some of their exemption thresholds are much lower.
You won’t incur a gift tax for transferring property this way because you’re granting the home at your death, not during your lifetime.
Your beneficiaries will receive a “stepped up” basis for purposes of any capital gains tax that might come due if they sell the real estate. Their basis in the property is its value at the time of your death, not its value at the time you originally acquired it, which would be the case if it were transferred to them during your lifetime. This can make a considerable difference.
Benefits Of A Life Estate Deed
There are many benefits to creating a life estate deed, sometimes called a life estate trust:
- Avoid probate. Mom gets to pass her property to Son without its having to go through probate. When she dies, he becomes the owner without a court proceeding
- No will necessary. Mom doesn’t have to include the property in a will. She signs the deed and it’s done.
- Emotional relief. Mom signs the deed and knows that she doesn’t have to worry about what is going to happen to the property after her death.
- Avoid gift tax. Using a life estate property deed can be preferable to an outright gift from Mom to Son during Mom’s life, because that could be subject to gift tax.
- A place to live. A life estate deed is often used to provide housing for someone until they die. Mom might own a home in her own name and create a life estate deed that gives her much younger husband a life estate in the property so Mom can be assured he will always have a place to live. She can leave the remainder to Son, so he will get his inheritance once Stepdad dies.
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Life Estate Vs Transfer
You might want to consult with an attorney to consider another estate-planning mechanism if you don’t live in one of the five states that recognize Lady Bird deeds. Transfer-on-death deeds function in a manner similar to an enhanced life estate deed in that they don’t take effect and transfer property to beneficiaries until after death, but the language in the deed must specifically state this.
The property doesn’t require probate and it doesn’t become part of the decedent’s probate estate because a mechanismthe deedis already in place to transfer ownership from the deceased owner to one or more living beneficiaries. More than half of all states recognize transfer-on-death deeds in their statutes as of 2020:
|Transfers property after death and avoids probate||Transfers property after death and avoids probate|
|Owner retains control while alive||Owner retains control while alive|
|Not subject to Medicaid “look back” rules||Property can be seized at death to repay Medicaid|
You can revoke a transfer-on-death deed to transfer the property back. A conventional deed would require that a new deed be created to supersede the first one.
Understanding Your Obligations And Rights Under A Life Estate
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Transfer On Death Deed
A transfer on death deed allows you to retain full ownership during your lifetime and conveys your full interest to the Grantee upon your death. During your lifetime, the Grantee has no interest in the property.
The main advantage of the transfer on death deed is that it is very flexibleit can be revoked at any time unlike the life estate deed. However, because the property fully remains within your control, a transfer on death deed does not start the clock on the five year period and so the property would still be counted among your assets for Medicaid eligibility.
Ultimately, the decision between a life estate and transfer on death deed is dependent on why you want to transfer the property. If you simply want to avoid probate while still having full control over your property, a transfer on death deed might be the best choice. If youre concerned that you may have to apply for Medicaid in the relatively near future, a life estate deed might be a better option. In any case, a conversation with an estate planning attorney can help you make the right choice for your situation.
How To Set Up A Life Estate
This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013.There are 9 references cited in this article, which can be found at the bottom of the page.wikiHow marks an article as reader-approved once it receives enough positive feedback. In this case, 87% of readers who voted found the article helpful, earning it our reader-approved status. This article has been viewed 96,218 times.
A life estate is a co-interest in property which allows the party owning the life estate, known as the life tenant, to use and enjoy the property for their lifetime. The interest of the life tenant terminates immediately upon their death, and ownership transfers to the remainderman named in the deed or will. Life estates are most commonly set up as estate planning tools in order to avoid probate or Medicaid planning tools in order to protect an elderly Medicaid patients home.
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The Advantages Of A Life Estate In New York
For seniors in New York that are in the midst of updating their estate plan or even undertaking one for the first time, the use of a life estate may be an excellent planning tool to discuss with your attorney. For the uninitiated, the term life estate” is likely somewhat of a foreign term that youve never considered. Contrary to any potential first impressions that it may cast, when used properly, life estates can be a wonderful tool to not only preserve one of your likely most valuable assets, your home, but also simplify its transfers when you pass away.
At its most basic level, granting someone a life estate amounts to no more than deeding your property over to your intended heirs on a pre-death basis. Doesnt sound too complicated, right, but you might be asking yourself what about all the tax consequences that are likely to accompany such a transfer? And more importantly, where am I going to live once I transfer my home away?
By way of estate planning tools, life estates have several advantages that will be enjoyed once undertaken, but the most critical advantage is suggested by the name life estate itself. When one grants a life estate, they reserve for themselves the right to retain, use, occupy and pretty much all other property rights that come with home ownership. The property remains yours until you actually pass away.
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What Are Some Benefits Of A Life Estate In A Personal Residence
The life tenant has the legal right to remain in her house for as long as she lives. If she transferred her house outright, however, the new owner could legally sell the property the next day, forcing her to vacate the premises. With a life estate, the property can pass immediately to the remaindermen without the necessity of a probate proceeding.
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What Is A Life Estate Deed
A life estate deed is one way of transferring ownership of real property.
Alife estate deed is a legal document that changes the ownership of a piece of real property.
The person who owns the real property signs a deed that will pass the ownership of the property automatically upon her death to someone else, known as the “remainderman” . As part of the deed, Mom keeps what is called a life estate, which means she can continue to live on and use the property for the rest of her life.
She becomes a “life tenant.” The deed would normally include language like “to Mom for life, to Son as the remainder.” The life estate deed is completed when Mom signs the document and it is filed with the county.
Estate Planning With A Life Estate Deed
People are growing increasingly nervous about retirement and healthcare. For good reason. The health insurance market has grown alarmingly costly. As a result, more people than ever are turning their attention to Medicaid how to qualify and most importantly, how to protect their assets. While much has been written on Medicaids eligibility requirements and procedures, most people are still unware of the agencys greatest concerning and disturbing practice.
For homeowners on Medicaid , there is a grave risk that upon your death, if the state agency cannot recover the amounts they paid out to hospitals on your behalf to nursing homes, doctors, hospitals, etc., from assets of your estate, a sale will be forced on your home in order to secure proceeds to satisfy the agencys claim. This rule of thumb applies even if you own the property with another person .
For individuals approaching retirement age or even persons currently on Medicaid, this news isnt entirely dire. Chances are you still have time for modest estate planning. If you are planning for homecare in the near future or can imagine circumstances leading to a nursing home residency, you need to start mapping out an estate plan with an estate lawyer to protect your home and assets from the reaching hands of Medicaid. Lien estate recovery is not an exception it is a rule.
The following are some of the pros and cons of creating a deed with a life estate for estate planning purposes:
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Home Transfers And Retained Life Estates In New York State
Many people have the idea or the notion that they should be transferring their home to their children or making the mistake of adding their children on the deed to their home in order to protect it from the nursing home or to avoid NY probate.
There are many possible dangers and pitfalls of doing this without the proper legal advice from a NY elder law attorney who is well versed and experienced in Medicaid law and estate planning.
The general practice lawyer or real estate lawyer may end up doing a great disservice and creating a lot of future problems to an individual if asked to do a deed transfer when they have no idea about how NY Medicaid works or the resulting Tax ramifications.
The legal ramifications of transferring or adding a family member to a deed can be catastrophic. Dont do it without first speaking to the NY elder law attorneys of The Law Offices of Michael Camporeale. The elder law lawyer will be better able to guide you. The attorney can also help with Medicaid planning as well as estate planning. Attorneys at The Law Offices Of Michael Camporeale P.C. have been serving clients all over New York for over a decade and we understand all the needs of the elderly people. We understand that they need nursing home care and that they cannot remain dependent on others for long. To speak to an estate planning attorney or an elder law lawyer in NY, call us at 475-9639 to schedule a Free Initial Consultation with our experienced lawyers.