Life Estate or Living Trust?
The Washington Post published an article called The Pros and Cons of a Life Estate vs a Living Trust on May 20, 2020.
The question is a good one: Life Estate or Living Trust? Following is a short summary of the information provided in the article:
A Life Estate is the ownership of a property for the duration of a person’s life. A Life Estate gives an individual ownership while they are living, but this individual is not the actual owner of the property.
There are various issues that can arise with Life Estates. The owner of a Life Estate cannot sell or change a property. The owner of a Life Estate cannot use the property if they need money. Additionally, when the owner of a Life Estate passes away, the true owner gets the property back; the Life Estate is not automatically transferred to a spouse.
A Living Trust is a legal document for an individual where a designated person (a trustee) is given responsibility for managing the individual’s assets for the benefit of the eventual beneficiary.
Selling a property that is in a trust is typically a simple process in which the only verification needed is that the person signing is authorized to sign. In the event that the trustee/beneficiary has passed away, a successor is usually named in the trust.
Due to real estate fraud becoming a more common issue, a real estate agent may need to work directly with the settlement agent in regards to the recipient of the proceeds check. By planning ahead, this issue can be alleviated prior to closing.
We were intrigued by the information provided and thought we would take it a step further by consulting with Christopher Longwell, an attorney with Barron Peck Bennie & Schlemmer, who specializes in real estate law and estate planning.
Following is Christopher’s expert response:
“The answer is 100% correct. There are many pitfalls and unintended consequences with life estates. My experience is that they hinder the transfer of property and cause big problems with Medicaid eligibility. I have rarely advised a life estate. Trusts are very easy to deal with in this context and are usually a very good solution. This is one of those cases where a real estate agent believes they understand real estate and estate planning law, when in reality they do not. That is why we have trusted advisors that help us with complicated issues such as this. Real estate agents are great at helping others buy or sell a home, but should defer to an attorney when deciding how to title assets to most effectively pass them on to the intended beneficiary.”
If you have questions or would benefit from Christopher’s legal knowledge and expertise about real estate law or estate planning, please email him at CDL@bpbslaw.com.
If you would like to read the complete article from The Washington Post, please click here.