Life Estate Deed

Why Should I Consider A Life Estate Deed?

This type of deed is a popular estate planning tool as the property transfer is usually automatic and not subject to the probate process. Upon a person’s death, North Carolina law typically gives the surviving spouse or close family member the authority to gather the deceased person’s assets, pay their debts and taxes, and transfer their assets to designated beneficiaries. This process is known as probate and can sometimes develop into complex legal proceedings. By signing a life estate deed, property owners can rest easier knowing their property will pass unto their chosen parties without probate-related complications.

There are several other advantages to using a life estate deed, including the following.

• Easy Deed Transfer. Life estates are inexpensive and straightforward to establish — only requiring that a new deed be recorded.
• No Will Required. Property owners don’t have to include the property in a will. They may simply sign the life estate deed to have their property passed on upon their death.
• Greater Peace Of Mind. Signing a life estate deed can feel like a great relief for some people as they don't have to worry about what will happen to their property following their death.
• No Gift Tax. Using a life estate property deed can be preferable to an outright gift, which could be subject to a gift tax.
• Guaranteed Housing. Life estate deeds are most commonly used to secure housing for someone until their death. For example, a mother with a home in her name signs a life estate deed to give her younger husband a life estate interest on the property, and a remainderman interest to her children. The children may not stop the husband from living on or renting the property so long as he’s alive. By signing a life estate deed, the mother can rest assured her husband has a place to live and that the property will eventually pass on to her children.

Life Estate & Medicaid

Property owned via a life estate is typically protected from Medicaid claims once 60 months have elapsed after the transfer date. Following these five years, the property is protected against Medicaid liens to pay for end-of-life care. Unfortunately, life tenants are subject to disqualification for Medicaid during the 60 months.

Life Estate Deed Tax Implications

Life tenants do not receive the full income tax exemption typically available when a personal residence is sold. Remainderman parties receive no exemption either, so any capital gains tax would likely be due from the remainder parties’ proportionate share of proceeds from the sale.

Life Estate Vs. Transfer On Death Deed

A life estate deed and a transfer on death deed are used to pass property to a grantee upon someone’s death while avoiding the probate process. However, there are some critical differences between the two. 

Unlike a life estate deed, a transfer on death deed allows you to retain full ownership during your lifetime and conveys your full interest to the grantee upon your death. During your lifetime, the grantee has no interest in the property. This added flexibility can be a great advantage for some, as the transfer on death deed can be revoked, unlike the life estate deed. However, because the property remains entirely within your control, property on a transfer on death deed would still be counted among your assets for Medicaid eligibility.

Can A Life Estate Deed Be Contested?

It depends. If the deed was properly drafted, executed, recorded, and no facts supporting a fraudulent conveyance exist, it’s highly unlikely that the deed can be successfully contested. Speak to a real estate attorney for more information on challenging flawed or inadequate life estate deed transfers.

Can A Life Estate Deed Be Changed?

Deed transfers through a life estate are generally irreversible unless all life tenants and remainderman parties agree on the change. However, please note that some changes may be subject to unfavorable tax or Medicaid eligibility consequences.

Can A Life Estate Be Sold?

Yes. The life tenant may sell his life estate interest, meaning the buyer purchases the right to use the property for the lifetime of the specified person.