Most law schools use the analogy of a bundle of sticks to describe ownership of real estate. Fee-simple ownership is the highest form of ownership where you have the full bundle of sticks in your hand – you can fully possess, mortgage, utilize, etc. the property. As fee-simple owner you’re entitled to give away some of your sticks (ownership rights) in the form of leases, easements, mineral rights. As you give these sticks away, you still own the property in fee-simple but other parties may have the right to possess, utilize, drive across, mine for minerals, etc.
A life estate in real property is a similar concept; another stick to give out. As fee-simple title holder you’re entitled to deed ownership in your property to someone for only the duration of their life – this is known as “Life Estate”. They’re known as the “Life Tenant” and are able to fully possess, utilize, mortgage and enjoy the property as long as they stay alive. Upon creation of the Life Estate, ownership of the property is basically divided into two parts: The Life Estate interest and the Remainder interest. The Life Estate Interest is enjoyed by the Life Tenant throughout their life, the Remainder interest is the full ownership which transfer or reverts to someone after the Life Tenant dies. More on this below.
How to Create a Life Estate
It’s simple to create a life estate. A typical real estate transaction involves the fee-simple owner/seller (the “Grantor”) signing a deed conveying property to the buyer (the “Grantee”). This deed would contain language that full fee-simple title is being conveyed to the buyer, subject to any easements, rights, etc. previously conveyed (sticks given out along the way). To convey a life estate, the owner would simply specify in the deed that the Grantee is receiving a life estate in the property – see links to deeds below.
The Remainder Interest
So, who gets the property when the Life Tenant dies? There are two options:
- Reverter. If the deed into the Life Tenant (creating the Life Estate) does not specify who gets the Remainder interest, ownership of the property will revert back to the Grantor of the Life Estate; or
- The “Remainderman”. If the deed specifies who gets the Remainder interest, ownership of the property will automatically vest in them upon death of the Life Tenant.
A Life Estate Example
Mr. Jerry Johnson owns an investment property in Miami, Fl. His mother, Doris, just retired and is looking to move to Miami. Rather than lease the property to his mother, he wants her to own it and be responsible for the utilities, taxes and insurance. Upon her death, he wants to make sure the property bypasses her estate and reverts back to him. Jerry is also considering having the property go to his brother Bill upon her death. Jerry has a couple of options:
- He can deed the property to “Doris Johnson, as to a Life Estate and Mr. Jerry Johnson, as to the Remainder Interest”. This would vest his mother as the Life Tenant, with the remainder interest going back to Jerry upon her death.
- He can deed the property to “Doris Johnson, as to a Life Estate”. Since a remainderman was not specified, the property would automatically revert back to the Grantor (Jerry).
- He can deed the property to “Doris Johnson, as to a Life Estate and Bill Johnson as to the Remainder Interest”. Title would vest in his mother for her life, automatically transferring to his brother Bill upon her death.
Rights of the Life Tenant and Remainderman
The Life Tenant can do anything that a fee-simple owner could do. They can mortgage the property, sell it, grant easements/leases. The caveat is that anything the Life Tenant does will vacate/terminate when the Life Tenant dies. Therefore, if John Smith, as life tenants deeds you the property. You own the property as long as John Smith is alive (not you). If a lender gives John Smith money in exchange for a mortgage – that mortgage will cease to encumber the property when John Smith dies. So be careful when dealing with a Life Tenant, as the remainderman would need to join in on any conveyance/encumbrance to fully sell or mortgage the property.
The Remainderman has little rights while the Life Tenant is still alive. They are able to sell/transfer their remainder interest to someone else. That party would then take over ownership when the Life Tenant dies.
An Advanced Powers Life Estate
It is possible for the Grantor of a Life Estate to empower the Life Tenant to sever the Life Estate altogether. For example, say Jerry (in our example above) wants his house to stay vested in him, but go to his mother if he was to die before her. he could grant a Life Estate to himself, with a remainder interest going to his mother. The key is that the deed would need to specifically contain language granting the Life Tenant powers of absolute authority without the remainderman’s joinder. Language similar to:
“Jerry Johnson, as to a Life Estate and Doris Johnson, as to the Remainder Interest. The Life Estate Tenant has the full power and authority, without the consent or joinder of the remainderman, to sell, convey, mortgage, encumber, lease sever the life estate or otherwise dispose or manage the property, in fee-simple.“
Death of the Life Tenant
As previously identified, the Remainderman instantaneously takes over ownership of the property upon the death of the Life Tenant – the Life Estate is completely extinguished. A certified copy of the Life Tenant’s death certificate should be obtained and recorded in the public records of the county to which the property is located in.
Life Estate Deed Forms
Down template copies of Life Estate and Advanced Life Estate Deeds here.