This week’s question: WHAT IS A LIFE ESTATE? By: Daniel A. Gwinn, Esq.
This week’s question: WHAT IS A LIFE ESTATE? QUESTION: My wife Mary and I have been married 20 years; it’s the second marriage for both of us. I have begun to think about what will happen when I’m gone. I love my wife, but I am nervous about leaving her the house, an asset I brought to the marriage, because I want to ensure that it will eventually go to my children – and not hers. I heard a life estate might work for me. Can you explain what that is and how I can make one?
ANSWER: In a life estate, the interest in the property is split between the “life tenant” – the person who will live in the residence – and the “remaindermen/women” who actually “own” the house, but do not get full rights until the life tenant dies (or moves out). By setting up a life estate, you can ensure Mary may continue to live in the home after your death, but she will have no rights of ownership. In effect, she becomes a tenant, and your children become landlords (except, that they may not charge rent).
A life tenant is generally responsible for paying mortgage, interest, taxes, and insurance on the property, and must not “waste” the property, meaning it must be kept in good repair. The remaindermen may not dispose or encumber the property in a way that would be at odds with the interests of the life tenant (and vice versa).
Transferring ownership via a life estate will avoid probate and, in Michigan, also avoids “uncapping” the taxable value of the house, as long as the life tenant and those with the remainder interest are all related to the person who creates the deed or sets up the trust establishing the life tenancy: parents, wife, husband, children, adopted children, grandchildren.
Under Michigan Law, taxes on residential property cannot increase by more than 1.05 % or the rate of inflation, whichever is less, until the residential property is transferred. Once a transfer occurs, the taxes will once again be based on 50% of the assessed value of the property. Creating a life tenancy is just one way of avoiding the increased taxes that usually follow “uncapping” after a transfer.
Creating a life tenancy, whether by deed or trust, may have other advantages. You might want to explore both the pros and cons with your lawyer. The lawyers at GWINN TAURIAINEN PLLC are experienced attorneys and are happy to answer your questions. Give us a call for a free initial telephone consultation about your legal needs. For consideration of your questions in our web column, please submit your inquiry on the “Contact Us” page of our website at www.gwinntauriainenlaw.com.
ASK THE LAWYER By: Daniel A. Gwinn, Esq.
Attorney and Counselor at Law
This week’s question: WHAT IS A LIFE ESTATE? QUESTION: My wife Mary and I have been married 20 years; it’s the second marriage for both of us. I have begun to think about what will happen when I’m gone. I love my wife, but I am nervous about leaving her the house, an asset I brought to the marriage, because I want to ensure that it will eventually go to my children – and not hers. I heard a life estate might work for me. Can you explain what that is and how I can make one?