Pros & Cons of “Life Estate” Interests in Property

Introduction: Life Estate Interests vs. Other Ownership Interests

Estate planning often makes use of various types of ownership interests. This may happen, for instance, when an estate planning lawyer crafts a last will and testament for a client: in the will, the lawyer may distribute property to beneficiaries via “fee simple absolute” interests, which essentially means full ownership with full control over future distribution (post-death of owner), or via other types of interests. For example, a life estate interest refers to an ownership interest which is viable for as long as the holder remains alive, but the giver of the life estate determines the fate of the property following the death of the holder; in other words, the future distribution of the property is not something built into a life estate interest, as the holder merely has a “present possessory” right over the property but lacks the ability to control who receives the property in the future.

Life estate interests are commonly seen in wills. There are multiple reasons as to why this is the case. Life estate interests come with certain benefits and certain drawbacks. In this post, we will go over some of the pros and cons of this form of ownership.

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Pros: Limited Ownership Interests/Controlling Future Distributions

When someone conveys property with a fee simple absolute interest, the giver is putting a great amount of value into the hands of the beneficiary. With a fee simple absolute interest, the recipient has no restrictions on the use of the property, full present possessory rights, and also the power to determine who will own the property (and also how the property will be later used) when the current holder passes away. In many cases, and for lots of different reasons, conveying a lesser interest in property is considered the preferred route for many people. With a life estate interest, the holder makes use of the property, but ultimately future ownership is determined by the original donor.

This arrangement might be advantageous for various reasons. Depending on the circumstances, for example, someone might want to bequeath a life estate interest in a piece of real estate, and then predetermine that ownership of the real estate transfer to another person when the first beneficiary passes away. Again, there might be any number of scenarios in which electing this arrangement is beneficial. The fact that life estate interests can be used as a means for transmitting lesser ownership interests and retaining control for the original donor is highly critical.

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Cons: Technical Complexity & Trends Against Limited Ownership

Though life estates may have advantages, they aren’t necessarily free from potential drawbacks. For one thing, any instrument which utilizes life estate interests will involve a consequently higher degree of technical complexity. There is simply no getting around this fact. Life estate interests will involve unfamiliar terminology and concepts, and mastering these new things isn't always a welcome project for many people. The instrument which conveys the life estate interests will invariably include abstruse language which is likely to confound the typical reader. For the sake of simplicity, some people prefer fee simple interests, and others interests aside from life estates. In addition, there are also some legitimate reasons as to why other interests besides life estates may be preferred. In some cases, donors might have perfectly valid reasons as to why they want to convey fee simple absolute interests; fee simple interests are often passed to relatives or loved ones.

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Contact the Murphy Law Firm for More Information

Readers who want to know more about titling property, life estate interests, conveying titles to property, or other related estate planning topics, contact one of the estate planning lawyers at the Murphy Law Firm today by calling 240-219-5243.

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