Does a Life Estate Override a Will?

Does a Life Estate Override a Will?

It depends. Whether a life estate can override a will cannot be answered with a definite yes or no. A will usually establish most of the rights a life estate creates, though a will applies only upon the testator’s death.

Moreover, after the life tenant passes away, the life estate becomes void, and the property goes back to the ownership of the remainder owner. Therefore, in some instances, a life estate could override a will. This can occur if the will doesn’t categorically state that the life estate is to be dissolved upon the remainder owner’s death. If the will says nothing about the life estate, it will still be valid, and the property shouldn’t be divided according to the will.

What is a Life Estate?

A life estate is a legal agreement in estate planning comprising the transfer of a fraction of property ownership to another individual, called the life tenant. This occurs via several legal documents like a life estate deed or trust.

A life tenant’s rights include residing in and utilizing the assets or property for the rest of their life. At the same time, the beneficiary, in this case, known as the remainder owner, will own the property completely when the life tenant passes away. These arrangements are popularly used for real estate property, yet can be helpful to all sorts of real property.

Setting up a life estate guarantees joint ownership, whereby the remainder owner and life tenant have varying rights & responsibilities. Nonetheless, the life tenant has the right to live in and use the assets, even though the remainder owner is the ultimate sole owner of the said assets. It is vital to remember that the life tenant doesn’t have the power to sell or give complete ownership of the assets without the remainder owner’s consent.

Establishing a life estate can be viewed as a gift to the remainder owner despite letting the life tenant have control and use the property. It is beneficial for estate planning, as it allows for a smoother transfer of the property or assets to beneficiaries or heirs while possibly dodging probate.

On the other hand, it is crucial to talk to a lawyer and know more about the legal implications and documentation related to a life estate to ensure that it meets your particular estate planning requirements and objectives.

How Does it Work

A life estate creates two parties in the property:

1. The life tenant.
2. The remainder owner, also called the beneficiary.

Here are the rights and responsibilities of each:

The Life Tenant

• They have the ultimate right to use the property for the rest of their lives.
• It can be a joint or sole life tenant.
• They are responsible for the general maintenance and insurance of the property.
• They may rent the property and take income generated by renting the property.

The Remainder Owner

• They are not responsible for the maintenance of the property, provided the life tenant is alive.
• They have no right to collect or utilize income generated by the property.
• They automatically own the property, legally and instantly, if the life tenant passes away.

Benefits of a Life Estate

A life estate can be beneficial in many instances, and it presents the following benefits:

• Convenience & Cost: It is easy and cheap to create a life estate. Moreover, transferring the title after death is fast and easy.
• To Avoid Probate: If you have a life estate in California, you can dodge probate. If the last-life tenant dies, heirs will legally own the property.
• Advantageous To the Life Tenant: A life estate shields the life tenant’s right to utilize and reside in the property. Furthermore, the remainder of the owner’s financial issues won’t impact the life tenant’s ultimate right to the property in their lifetime.
• Tax Benefits: The heirs left behind will have a different capital gains tax basis from the date of death of the grantor, provided the life estate is established upon death.

Drawbacks of a Life Estate

Creating a life estate is not for everyone; therefore, it is vital to talk to a lawyer before establishing it. Here are some possible disadvantages of creating a life estate:

Tax Aftermaths

If the property is sold while the life tenant is alive, there could be income tax penalties. Life tenants don’t get a whole income tax exemption if a personal property is sold. The remainder of the owners won’t get tax exemptions either. Therefore, all outstanding capital gains will be taxed from the rest of the owner’s portion of the sale proceeds.

Permanence

Transferring property to a life estate is permanent. However, if the life tenant and remainder owner agree, the life estate’s terms can be changed. If the life estate was established when the grantor was alive, they abandoned all ownership rights to the assets or property.

Hard to Sell

Considering the life rights to a house, including the right to reside in and rent the property, it may restrict a buyer’s inclination to buy a property with a life estate involved.

How to Dissolve a Life Estate

There are several measures you MUST take to dissolve a life estate effectively, and they are as follows:

• Know Your Rights & Responsibilities
• Decide How to Transfer Ownership
• Effect Your Plans
• Inform all Parties Involved

Reversing a Life Estate

Reversing a life estate is not straightforward since a life estate deed is a legal handover of a property’s title. Ideally, to reverse a life estate, the life tenant and the remainder owner must agree to do it. You cannot reverse it alone as one participant of the agreement.

Conclusion

Life estates allow individuals to transfer property to their beneficiaries while keeping the right to reside in the property. Moreover, they can help handle the taxes, dodge probate, and meet other estate planning requirements. All the same, life estates are usually considered irrevocable and need the consent of the remainder owner before the life tenant can borrow against or sell the property. Similarly, the remainder owner has to approve any changes with the life tenant.