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Pros and Cons of a Life Estate in Texas

Property owners can use several estate planning tools to protect their homes for future generations while continuing to live in and enjoy the property before they pass. Life estates are one such tool. Whether creating a plan to protect yourself or a loved one, weighing the pros and cons of a life estate in Texas is essential. Further, understanding the scenarios under which a life estate might prove useful will help you plan for the future of your property.

If you need to protect your assets for future generations, Robbins Estate Law knows how to help. From wills and trusts to more detailed solutions such as creating a life estate, we have the experience to develop a successful estate plan that suits your needs. Our firm provides Texas families with ongoing financial and emotional support through effective and reasonably priced estate planning. Contact us today and schedule a consultation.

What Is a Life Estate?

A life estate is a form of joint ownership over a property. Essentially, one person retains the right to use and enjoy the property as a tenant for life, while another gets the right to any future interest. The person with the right to use the property is a life tenant. The individual with a future right is called the remainderman. Once the life tenant passes away, the remainderman owns the property outright.

What Is the Purpose of a Life Estate?

The primary purpose of a life estate is to protect a property from the liabilities of the life tenant and preserve the property for the remainderman. Since the remainderman owns all future rights, the life tenant’s creditors can not take the property to cover debts. This arrangement comes at the expense of the life tenant losing many of their rights regarding the property while they still live there.

Advantages of a Life Estate

Life estates have several advantages over other property protection methods, such as trusts. 

  • First—life estates can be relatively simple to form. In Texas, a life estate can be created by filing a notarized estate deed or otherwise clearly expressing intent to create a life estate. 
  • Second—a life estate can help someone pass property to the next generation of owners without the property going through probate. 
  • Third—creating a life estate can protect property from the life tenant’s future debts and Medicaid liens. 
  • Finally—remaindermen enjoy a full step-up in basis upon gaining control of the property, meaning they do not have to pay taxes on the capital gains accumulated before they owned the property when they sell it.

Now let’s look at some disadvantages of using this tool in your estate planning.

Disadvantages of a Life Estate

While life estates can be practical under specific circumstances, they have several disadvantages compared to other asset protection tools. To begin, life estates severely limit what a life tenant can do with a property while they occupy it. The life tenant needs the permission of the remainderman to sell, refinance, encumber, or make significant changes to the property. Further, if the parties agree to sell the property, the remainderman might face a substantial capital gains tax. Also, if the remainderman passes before the life tenant, the future right transfers to the remainderman’s heirs. This scenario might leave the life tenant to deal with an undesirable co-owner.

Common Reasons to Create a Life Estate

Given the advantages and disadvantages of life estates, there are several scenarios under which life estates are often used. Even under these circumstances, working with an experienced estate attorney is essential to determine if a life estate is the best option.

Medicaid Planning

Sometimes Medicaid can go after a person’s home to pay off nursing home costs. Older individuals might want to transfer their property to heirs to preserve it from Medicaid costs. However, they might also want to live in the house for as long as possible. A life estate can help older individuals accomplish this objective. Unfortunately, Texas has a 5-year look-back period for property transfers subject to Medicaid costs. This policy makes it essential to plan for Medicaid costs immediately.

Avoiding Probate

Probate can be a lengthy and expensive process in Texas. A life estate can help people pass the property on to the next generation without the property going through probate. Doing so can save heirs time and money.

Second Marriages

Often someone in a second or subsequent marriage will want to allow their current spouse to remain in the property for life but leave the property to children from a prior marriage. A life estate can be particularly useful in these situations. Using a life estate, you can look out for your spouse and ensure your children have a future right in the property.

Contact Robbins Estate Law Now

If you want to protect your property for future generations, Robbins Estate Law can help. Our firm has the knowledge and experience to develop a comprehensive estate plan that suits all your needs. From creating life estates to setting up wills and trusts, we will work diligently to ensure your estate plan is effective and remains current with the changes in the law and your life. Contact Robbins Estate Law today!

Author Photo

Kyle Robbins

Kyle Robbins is the founder and sole owner of The Law
Offices of Kyle Robbins. He received his J.D. with honors from the University of Texas School of Law and his B.S. in Food Chemistry and Microbiology from Oklahoma State University.

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