Life Estates in Massachusetts as an Estate Planning Tool

One way of determining who gets your real estate is to deed the property while retaining the right to use and occupy it during your lifetime. This is called a "life estate." Many people use this tool as a way of transferring property outside of probate, and/or ensuring that a specific asset remains in the family.

The goal of a life estate is similar to the goal of a trust- the grantor retains an interest during his or her lifetime but specifies the ultimate recipient. It is cheaper and easier than a trust, but may have unintended consequences.

What is a Life Estate and How is it Created

A life estate is the right for your lifetime to use and occupy the real property. As the life tenant, you also retain the right to receive a portion of the value of the property if it is sold. Selling or mortgaging the property cannot be done without the consent of the person ultimately deeded the property (known as a "remainderman").

You can create a life estate by executing a deed that transfers the property to yourself during your life with the remainder to the person or people you intend to give it to. This will create both their remainder interest and your life estate interest.

Life Estates and Planning for Long Term Care

One reason people use life estates is to protect their home from the costs of nursing home care. MassHealth/Medicaid will help pay or assisted living if you are financially qualified. Financially qualified means you do not have the assets to pay for care yourself. Removing a valuable asset like real property from your "countable assets" helps reduce those assets and speed up your eligibility for help with the cost of care.

One way people accomplish this goal is through an irrevocable Medicaid trust. Another is through the use of a life estate deed. It is important to remember that MassHealth will still attribute some value to your life estate when determining what assets you have available to pay for care.

How large a percentage of the property's value this will be depends on your age, and is determined by specific tables used by MassHealth. The point is there is a value, which may delay or hinder your eligibility for benefits.

Life Estates as an Estate Planning Tool

A life estate will allow you to avoid probate with respect to the property. It will not take the property out of your estate for estate tax purposes.

It is also somewhat of a blunt instrument when compared to a trust. If you deed property and retain a life estate, title automatically passes to the remainderman upon your death. That is the full extent to which you can control the distribution of the property.

This can create unintended complications. If you deed the property to your child and your child dies before you, that remainder interest is a part of his or her estate. That means it will be distributed according to their will or, if they do not have a will, the intestacy laws of the state where they live.

This could mean an extended probate process for their heirs. It could also mean the property passes to someone outside of your family. Neither of these is likely your intent.

Your remainderman's interest in the property is also subject to their creditors. If they have a judgment against them, a lien could be placed against the property. Similarly, their interest in the property could be subject to division if they are going through a divorce.

A trust, in contrast, allows you to be more specific and flexible. If you place your home in a trust with your child as a beneficiary, you can specify what should happen if the child dies before you, for example.

Consider All Estate Planning Tools

Transferring your interest in your home through a life estate deed is just one of the estate planning tools available to you. It is important to consult with an estate planning attorney to review your full family and financial situation. It may be that a life estate is the right tool to accomplish your goals. It may be, however, that a combination of wills and trusts, with or without a life estate deed, is what you really need to achieve the result you intend.

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