3 Problems With Life Estate Title of Real Property
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Real estate laws in North Carolina allow property owners to create and convey remainder interests in real property, while retaining lifetime rights to the property (a life estate). This is one way to transfer parents’ real property to children while allowing the parents the right to remain in and use the home. Life Estate Deeds avoid probate and provide ownership to both parents (Life Tenants) and children (Remainder Owners). TrustCounsel’s estate planning lawyers in Chapel Hill review a few issues that may surface for families relying on life estates:
1. Medicaid issues. Issues may arise for a parent collecting Medicaid who chooses to hold title in a life estate, but then moves to a nursing home. If the house is sold while the Medicaid-collecting parent resides in the nursing home, the value of the life estate is paid to the parent. This means the these proceeds would have to be spent on nursing home costs before Medicaid would continue.
2. Creditors. Judgments against children who are named as Remainder Owners could result in liens placed on the property. For children who have a high risk of incurring liability, an outright transfer of the remainder interest is not the best option.
3. Insurance complications. Failing to include Remainder Owners on a homeowners’ insurance policy could create serious problems. In the event the home is damaged, Remainder Owners may lose part of their share in the home’s value and may be held liable for covering repair costs. Our estate planning lawyers review the details of the life estate insurance blunder here.
There are also gift and income tax issues that individuals should review with an attorney before changing the way they hold title to real property in North Carolina. Life estates are good choices for some families, but there is more than one way to hold title that can avoid probate. Review every option with a lawyer during routine estate plan reviews.
