![How Does a Texas Life Estate Work](https://www.robbinsestatelaw.com/wp-content/uploads/2023/07/lawyer-9-300x200.jpg)
A life estate is an ownership agreement over a piece of property. It gives one person the right to remain in possession of the property for the rest of their life and another the right to own the property afterward. The person who holds the life estate for their life is called the life tenant. The person who owns a future interest in the property is the remainderman.
While this arrangement may seem constrictive to both the life tenant and the remainderman, life estates have valuable uses when it comes to estate planning in Texas. For example, creating a life estate can prevent the property from going through probate court. There are also tax and Medicaid advantages to passing down property via a life estate.
At Robbins Estate Law, we can help you create a life estate as part of a comprehensive estate plan. Our firm aims to provide you and your family with long-lasting financial and emotional support through effective estate planning. We design every plan to fit each client’s specific needs and offer affordable payment options to fit your budget. Contact us today to schedule a consultation.
How a Life Estate Works in Texas
Life estates in Texas work through creating a joint ownership interest in a property. The ownership interest is created by filing a notarized life estate deed. The life tenant maintains the exclusive right to use and control the property for the remainder of their life. However, the life tenant can not sell the property or use it in a way that will significantly reduce the property’s value to the remainderman. The remainderman gets a future interest in the property and gains complete control once the life tenant dies. In most cases, the remainderman only owns a future interest and has no right to live in the property while the life tenant is alive.
Pros and Cons of Life Estates in Texas
Using a life estate to convey property has several advantages and disadvantages.
Avoiding probate is one of the most significant advantages of creating a life estate. Probate can be a lengthy process that puts the transfer of your property to the beneficiary at risk. Second, a life estate can protect your property from creditors since the remainderman has a future property right. Further, a life estate can protect the home from being subject to a Medicaid lien when the life tenant dies. Finally, the remainderman will enjoy full ownership once it transfers to them.
On the other hand, life estates bestow a permanent interest to the remainderman. This interest limits what a life tenant can do with the property. For example, the life tenant and the remainderman can only sell the entire rights to the property if they agree. If the house is sold during the tenant’s life, the remainderman will owe capital gains tax, presenting another disadvantage. Additionally, if the remainderman dies before the life tenant, the life tenant is stuck owning property jointly with the remainderman’s heirs.
Considerations for Life Tenants
Life tenants enjoy specific rights after creating a life estate and must uphold several responsibilities.
Rights
The life tenant enjoys the right to exclusive possession of the property until their death. This possession means the tenant maintains control and management of the property. Further, the life tenant is the sole owner of any income generated by the property. Tenants can lease or sell their limited ownership interest in the property. They can also use the Texas homestead law to their advantage in certain situations.
Duties
Life tenants must pay the ordinary taxes on the property and any income it generates in addition to the interest payments on the mortgage and insurance premiums. They also need to maintain the property and use it in a way that does not substantially damage its value to the remainderman.
Considerations for Remaindermen
Remaindermen have rights and obligations as well.
Rights
Upon the life tenant’s death, the remaindermen get exclusive ownership of the property. At this point, they gain complete ownership and control. Further, the life tenant can not take out a mortgage or otherwise encumber the property without the remainderman’s permission. Unless otherwise agreed upon, the remainderman can sell their future interest in the property.
Duties
The remainderman must pay the principal on the mortgage every month and will be fully financially responsible for the property when the life tenant dies. They must also allow the life tenant the exclusive use of the property until their death.
Contact Robbins Estate Law Today
Creating a life estate is only one of many legal options to protect your property for beneficiaries and plan for Medicaid. Due to the disadvantages of life estates, many people have better options when they plan their estate. At Robbins Estate Law, we can identify your options and help you choose the package that best fits your needs. Schedule a consultation now.