Life Estate Provision

Using a life estate deed as a way to protect real estate from long-term care costs has been a common planning technique for decades. ... The deed includes a provision stating that the parents “retain the right to use and occupy the property during their lifetimes,” a so-called “life estate” in the property.

In common law and statutory law, a life estate is the ownership of land for the duration of a person's life. In legal terms, it is an estate in real property that ends at death when ownership of the property may revert to the original owner, or it may pass to another person. The owner of a life estate is called a "life tenant".

In the combined jurisdiction of England and Wales since 1925 a freehold estate intended to be 'held' as a life interest takes effect only as an interest enjoyed in equity, specifically as an interest in possession trust. The other type of land ownership is leasehold and although most long leases are for a period of between 99 and 999 years'leases for life' will be interpreted in often unpredictable ways as either as a licence or a lease.

The ownership of a life estate is of limited duration because it ends at the death of a person. Its owner is the life tenant (typically also the 'measuring life') and it carries with it right to enjoy certain benefits of ownership of the property, chiefly income derived from rent or other uses of the property and the right of occupation, during his or her possession. Because a life estate ceases to exist at the death of the measuring person's life, the life tenant, a temporary owner, may short-term let but cannot sell, give or bequeath the property indefinitely (including assuming it could pass to heirs (intestate)) or creating a purported document leaving it to devisees (testate).

A life estate pur autre vie (Law French, "for the life of another") is held for the rest of the lifetime of a person who does not hold the estate. This form of life estate arises where a life tenant has disposed of the property, assuming such a disposal does not trigger any special forfeiture under the life interest instrument. It also arises where the grantor chooses to make the measuring life that of someone other than the life tenant's life. A life estate pur autre vie is most commonly created in one of two circumstances.

  • First, when the owner of property conveys his interest in that property to another person, for the life of a third person. For example, if A conveys land to B during the life of C, then B owns the land for as long as C lives; if B dies before C, B's heirs will inherit the land, and will continue to own it for as long as C lives.
  • Second, if A conveys land to C for life, C can then sell the life estate to B. Again, B and B's heirs will own the land for as long as C lives.
  • In either scenario, once C dies, the ownership of the land will revert to A. If A has died, ownership will revert to A's heirs. The right to succeed to ownership of the property upon the expiration of the life estate is called a remainder. The remainder interest may be granted to a third party (A to B for life, with a remainder interest in C), or it may remain with the grantor.

A clear distinction should be made with an estate for (a) term of years, interpreted as lease or licence.

At death, assuming no mis-dealings to certain innocent purchasers, the property involved in a life estate falls into the ownership of the remainderman (pl.remaindermen) or reverts to its grantor (all of which confusingly can be called 'reversions' and 'reversioners'). There is a small market for reversions in real estate, which necessitates a buyer to carry out enhanced documentary due diligence and physical checks.

A land owner of an estate cannot give a "greater interest" in the estate than he or she owns. That is, a life estate owner cannot give complete and indefinite ownership (fee simple) to another person because the life tenant's ownership in the property ends when the person who is the measuring life dies. For instance, if Ashley conveyed to Bob for the life of Bob, and Bob conveys a life estate to another person, Charlie, for Charlie's life [an embedded life estate], then Charlie's life estate interest would last only until Charlie or Bob dies. Charlie's life interest or pur autre vie interest (interest for the life of another, whichever has applied) and most often the remaining rights of ownership in the property (the 'reversionary interest') devolve to the persons under the terms of the will/rules of intestacy/declaration of trust/trust deed (UK) or will/rules of intestacy/'grant or deed of life interest' (or similar) (U.S.) in remainder or revert to the original grantee, depending on terms of Ashley. Such a life estate in the U.S. can also be conveyed for the life of the grantor, such as "A conveys X to B until A dies" and in the UK by trust transferring upon trust or assigning rather than conveying X.

If a life tenant purports to transfer the underlying 'reversionary' interest, which a life tenant never has, this constitutes an actionable breach of trust for damages and may constitute criminal fraud however may not entitle the ultimate reversioner (or substituted beneficiaries) to be able to obtain a court declaration that the property is their own if that property is in the hands of an innocent purchaser for value without notice (bona fide purchaser).

Financial and physical responsibility falls to the life tenant under the legal doctrine of waste, which prohibits life tenants from damaging or devaluing the asset. In short, as the life tenant's ownership is temporary, failing to maintain or reasonably protect the asset resulting in its diminution in value, or indeed, destruction constitutes a cause of action for the reversioner.

A further limitation is the rule against perpetuities in many states and countries which prohibits long-running pre-19th-century style successions of life tenancies and may result in the premature and compensation-entitling termination of such successive life interests. In England and Wales this is fixed at one lifetime, or 80 years whichever is longer.

Selling property while keeping a life estate is commonly known in France as "viager" where it is used more often than elsewhere, most famously in the case of Jeanne Calment, the longest lived human ever recorded.

Uses of a life estate

In the United States, a life estate is typically used as a tool of an estate planning. A life estate can avoid probate and ensure that an intended heir will receive title to real property. For example, Al owns a home and desires that Bill inherit it after Al's death. Al can effectuate that desire by transferring title to the home to Bill and retaining a life estate in the home. Al keeps a life estate and Bill receives a vested fee simple remainder. As soon as Al dies, the life estate interest merges with Bill's remainder, and Bill has a fee simple title. An advantage of such a transfer is that it makes the use of a will unnecessary and eliminates the need to probate the asset. A disadvantage is the small risk of a fraud on the part of beneficiary Bill, if he could easily show in a particular jurisdiction an unfettered fee simple, he could sell the estate prematurely to an innocent purchaser such as when Al is on vacation. A second disadvantage to the grantor is that provision for any remainderman (or men) (party C) is irrevocable without the remainderman's consent. "Beneficiary deeds" have been statutorily created in some states to address this issue.

This information is not intended to be tax or legal advice, and it may not be relied 
on for the purpose of avoiding any federal tax penalties. You are encouraged to seek 
tax or legal advice from an independent professional advisor.