The Life Estate, Part 1: Defining the Asset Conveyed

Life estates are sometimes used in estate planning to avoid probate and/or to make certain that the intended person receives the asset.  Life estates are sophisticated planning tools and you should seek the advise of an attorney to draft a document that will meet your individual needs.  As we will see in future installments of this series, problems can arise from the conveyance of a life estate if not done properly.  Estate problems can also be avoided with a carefully crafted life estate.

A life estate is a estate in land with a present life tenant, and a future vested remainderman.  Each person has different interests in the land.  The person who has a life estate in land is a legal life tenant and has a present interest in the land/property.  The life tenant is the measuring life, meaning that once the life tenant dies the property goes to the remainderman, the person named in the life estate agreement.   A remainderman has a vested future interest in the property, meaning that s/he has standing before a court to bring an action against a life tenant for waste.

The life tenant has the present use and enjoyment of the land during his/her lifetime, including derivative income from rents, agricultural, and other uses, while the remainderman waits patiently for his/her future full ownership to mature at the death of the life tenant.  However, the life tenant may not engage in waste.  Waste is a legal theory that gives rise to a cause of action by the remainderman.  There are three types of waste that can give rise to a cause of action by a remainderman.

The first type of waste is called permissive waste.  Here the life tenant fails to do something to maintain the property either physically or financially.  For example, the life tenant fails to make ordinary repairs, pay maintenance charges, pay taxes, or pay the mortgage or mortgage interest on the property.  Permissive waste is like the sin of omission.  There is no bad act per se, but the failure to act results in the damage.

If the failure to act causes permissive waste, it it better for a life tenant to improve the property?  Not if the improvement changes the character of the property.  That is called ameliorative waste. The life tenant may not engage in ameliorative waste even if the improvement increases the value of the land.  The remainderman can ask the court for injunctive relief, even if the property is in miserable condition.  The exception is when the neighborhood has sufficiently changed from residential to commercial.  The life tenant may then change the nature of the land use from residential to commercial without committing ameliorative waste.

Voluntary waste occurs when the life tenant intentionally or negligently causes harm to the property, or depletes its resources.  The exception to this rule is when there is a pre-existing use, if for instance part of the property was originally used for lumbering.  Where there has been continuing exploitation of a resource already in use, then there is no voluntary waste.

Where a court finds waste, the remainderman may be awarded money damages for the loss, the life tenant may be ordered to restore the property to its original state, or the court may divest the life tenant of the property and vest title immediately in the remainderman.

While a life estate can be a good tool in estate planning, the language of the life estate agreement has to be carefully crafted by an attorney to avoid potential problems.  For instance, a life estate is a terminable interest and thus may not qualify for the estate tax marital deduction.  Also, a life tenant cannot will ownership in a life estate.  Therefore, careful consideration of the totality of the family’s circumstances must be taken into account so that there are no unintended consequences.  The life tenant may become physically or mentally disabled and inadvertently commit permissive waste as a result.  The agreement should include a process for taking care of necessary payments in the event of such incapacity.  Finally, the remainderman may die before the life tenant.  It is thus very important to draft a life estate agreement that takes this possibility into account.

In subsequent posts in this series, we will look at cases where a life estate is at the center of the estate dispute.  If you would like to discuss your own personal situation with me, review your current legal life plan, or put together a legal life plan that is tailored for your needs, you can get a free 30-minute consultation simply by filling out this contact form.  I will get back to you promptly.

I invite you to join my list of subscribers to this blog by clicking on “Subscribe to” on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.

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