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.
Here is a typical scenario. An aging parent wishes to remain in his/her home and to be cared for in the home for as long as possible. To avoid any complications that might arise from ill health or dementia, the parent executes a new deed retaining exclusive use and occupancy of the property with the property passing to a named remainderman (usually a child) when the parent’s life estate terminates. The remainderman has a vested future interest in the property that will ripen into full ownership once the life estate expires.
Clearly this scenario works well in a predictable world. But more often than not, your attorney will advise you to protect yourself against the following possible events:
the remainderman precedes you in death;
the remainderman suffers a catastrophic mental or physical illness;
you and the remainderman have a serious falling out;
family circumstances have changed and another child is a better candidate to receive the property.
To mitigate against such eventualities, the original donor/grantor of the life estate (usually the owner of the property at the time of the life estate agreement) may reserve for himself/herself not only a life estate but also a limited power of appointment. The donor/grantor may then exercise the limited power of appointment to change the remainderman provided that s/he has the mental capacity required to transfer the property and that the change in remainderman is done through a properly executed written instrument.
Consider the case of Richard C. Voght and his three children. In December 2006, Richard Voght executed a deed conveying property in Montgomery County to his son Gilbert M. Voght. Richard reserved for himself a life estate as well as a limited power of appointment to be used, if at all, during Richard’s lifetime. In order to exercise this power of appointment, Richard had to execute another deed and make specific reference to the 2006 limited power of appointment.
One year later on December 2007, Richard exercised this limited power of appointment to remove Gilbert from the deed and to name his two siblings instead as sole owners of the property. The 2007 deed still reserved to Richard a life estate as well as the same limited power of appointment as in the previous 2006 conveyance.
Richard and his two other children then commenced an action to eject Gilbert from the property Gilbert sought an injunction from the court and a determination that the 2007 deed did not transfer property rights to his siblings. He also asked that the 2007 deed be corrected to reflect the language of the 2006 deed. Richard and his remaining children moved for summary judgment. The New York Supreme Court sided with Gilbert and confirmed his title in the property subject to his father’s life estate. In effect, the court determined that Richard had not reserved a limited power of appointment that could, if executed, change the identity of the remainderman. The defendants appealed.
In Voght v. Voght, 64 A.D.3d 984, 882 N.Y.S.2d 551 (N.Y. App. Div. 3d Dep’t 2009), the Appellate Court overturned the lower court and found that Richard had indeed reserved a limited power of appointment for himself. Citing EPTL 10-4.1, the court found that a donor can transfer property or reserve to himself/herself the power with a written instrument executed with all due formalities, so long as the transfer is not used as a way of avoiding creditors. What Gilbert had received in the 2006 conveyance was a vested remainder subject to complete defeasance if during Richard’s lifetime he decided to use his limited power of appointment. Thus the 2007 deed completely divested Gilbert of the property and gave it to his siblings instead as remaindermen in the life estate — for the time being at least, until such time as he chose to exercise his limited power of appointment again.
The Voght case is an example of the benefit of creating a life estate agreement with a limited power of appointment. Circumstances may change such that there is a need to name a different remainderman. However, it must be kept in mind that a change in remainderman can have a disruptive effect on an estate plan. A life estate is best used as a tool for long-term estate planning where the totality of the circumstances warrant it. Depending upon your goals, an attorney can suggest alternatives, including a trust, that can not only achieve your estate planning objectives but also maintain family harmony.
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.