What is a Life Estate Deed?
A life estate deed is a special deed form that allows a property owner to use the property during life and transfer the property automatically at death. Life estate deeds are designed to transfer the property at death without losing the ability to use the property during life.
Life estate deeds work by dividing the property into two types of interests. One interest is measured based on the owner’s lifetime and is called a life estate. The interest that passes at the owner’s death is called a remainder or remainder interest. The life estate and remainder interest are then transferred to different owners. There are three categories of owners:
- Current Owner (Grantor) – The person creating the deed is called the grantor.
- New Owner (Life Tenant) – The person who owns the life estate is called the life tenant.
- Future Owner (Remainder Beneficiary) – The person who will acquire the property when the life tenant dies is called the remainder beneficiary or remainderman.
As with other deeds, these terms refer to different types of owners, not to specific individuals. The same party may serve in multiple roles. The current owner (grantor) is usually also the life tenant. Similarly, multiple individuals may serve in the same role. For example, there may be two grantors, three joint life tenants, and one remainder beneficiary.
Example: Peter creates a life estate deed transferring his property to himself, as life tenant, with the remainder to Paul and Mary. The effect of this deed is to retain a life estate for Peter as life tenant. At Peter’s death, the remainder interest will automatically transfer to Paul and Mary.
Note: As discussed below, there are two types of life estate deeds: Traditional life estate deeds and lady bird deeds, also called enhanced life estate deeds. This article focuses primarily on traditional life estate deeds. See our discussion of lady bird deeds for more information about enhanced life estate (lady bird) deeds.
How to Create a Life Estate Deed
The creation of a life estate deed can be tricky. It is important to include the right language to create the life tenant relationship. If multiple parties will serve in the same role—for example, if there are multiple life tenants or multiple remainder beneficiaries—it is important to also include language that defines the relationships within that role, including the form of co-ownership for multiple remainder beneficiaries.
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Comparison to Other Deed Forms
A life estate deed is not the only way to transfer property at death. Property will automatically transfer to the surviving owner at death if it is titled as tenancy by the entirety, joint tenants with rights of survivorship, or community property with rights of survivorship. With these forms of co-ownership, the owners have simultaneous possessory rights. Each owner can occupy or use the property at the same time.
A life estate deed is also a form of co-ownership. Both the life tenant and the remainder beneficiary have real interests in the property. But unlike other forms of co-ownership, they do not have property rights at the same time as each other. Instead, their interests are stacked in time. Only the life tenant has a right to current possession of the property. The remainder beneficiary’s interest does not begin until the life tenant’s death.
Life Estate Deeds and Lady Bird Deeds
Life estate deeds are often used to avoid probate. There is no need to probate the life tenant’s estate in order for the remainder beneficiary to acquire title to the real estate. To establish title to the property, the remainder beneficiary can simply file the life tenant’s death certificate in the land records.
There are a few downsides to using traditional life estate deeds to avoid probate. Once the transfer is made, the remainder beneficiary has a real, enforceable property right. The life tenant cannot simply change his or her mind. For example, if the life tenant wants to sell the property later, the remainder beneficiary must consent to the sale.
To avoid these problems, some states allow the use of a special deed form called a lady bird deed form. Like a traditional life estate deed, a lady bird deed avoids probate on the death of the life tenant. But unlike a traditional life estate deed, the life tenant may freely deal with the property during his or her lifetime without the remainder beneficiary’s involvement. The life tenant may even change the remainder beneficiary or undo the life estate arrangement, all without the remainder beneficiary’s consent. This flexibility often makes a lady bird deed a popular alternative for avoiding probate.