What is a life estate & how do I use one?

An estate planning option that lets you name a beneficiary to your home, while you continue to live in it

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Elissa SuhSenior Editor & Disability Insurance ExpertElissa Suh is a disability insurance expert and a former senior editor at Policygenius, where she also covered wills, trusts, and advance planning. Her work has appeared in MarketWatch, CNBC, PBS, Inverse, The Philadelphia Inquirer, and more.

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A life estate is a type of joint ownership that allows someone to live in their home during their lifetime and transfer it to a beneficiary upon their death. A life estate is commonly created with a life estate deed. The main advantage of using a life estate is to avoid probate. When you give someone property and assets, including real estate, through a last will and testament, they must wait for the validity of the will to be proven in a court of law before they can receive it. Since this takes time, a life estate provides a useful way for your beneficiary to receive the property faster.

The life estate comes with some tax advantages and helps with Medicaid planning, so it can be a useful part of an estate plan. However it also has distinct drawbacks. The person who creates the life estate (the grantor) and the beneficiary share an ownership interest in the property, so once a life estate has been established it can’t be changed without both of their consent.

If youre looking for a way to transfer property outside of probate, you can also consider a transfer-on-death deed or a trust — both of which offer more flexibility and control than a life estate does.

Key takeaways

  • A life estate lets you keep living in your house as a primary residence.

  • Your beneficiary (remainder owner) receives the property outside of the probate process.

  • Life estates may be helpful with Medicaid planning and eligibility, depending on the state.

  • It may be difficult to revoke a life estate or change its terms.

How a life estate works

There are two main parties involved in a life estate. Both share joint ownership of the property and have specific rights and privileges.

  • The life tenant, also known as the life estate owner holds the life estate and lives in the property until they die.

  • The remainderman, also known as remainder owner or remainder beneficiary is the beneficiary of the property and receives full ownership once the life tenant dies.

A strong estate plan starts with life insurance

While the life tenant is alive, they are responsible for the property’s maintenance and related expenses, like paying for homeowners insurance, property taxes, and a mortgage if there is one. The life tenant can also lease the property and collect rent. The remainderman (or remaindermen) doesn’t have any right to use the property or live in it unless the life tenant agrees.

In general, no major decisions can be made regarding the property unless both the life tenant and remainderman are in agreement. This includes changing the life estate beneficiary, getting a mortgage, or selling the property. If the property is sold, its profits aren’t distributed equally though. How much each owner receives is determined by the IRS. Generally, the older the life tenant is, the less money they will receive.

What is a life estate deed?

Life estates are commonly created through a life estate deed. Let’s say you own a house. You can create a life estate deed that names you as the life tenant and your daughter as the remainderman. The deed conveys the ownership from yourself entirely to yourself only while you’re alive, and to your daughter when you die.

A life estate deed is a fairly short legal document that creates a life estate and it must be filed with the local recording office, otherwise it is not valid. You can usually find a free form online to fill out on your own, but may want to contact an estate planning attorney to create one for you. Don't forget to pay a notary to notarize the deed.

What happens to a life estate after someone dies?

Upon the life tenant’s death, the property passes to the remainder owner outside of probate. The remainderman typically only needs to go to the recording office with a copy of the death certificate. They can sell the property or move into and claim it as their primary residence (homestead). Property taxes will not be reassessed.

If the remainder owner dies first, then their ownership interest must be probated. Whoever was named in the will or determined to be the heir will become the new remainderman.

Other types of life estate

When people mention life estates, they usually mean life estates in real property (real estate or land), but you can also have a life estate in something else, like an investment. Someone might have a life estate in bonds, stocks, or REITs, for example.

Benefits & disadvantages of a life estate

The main benefit of a life estate is avoiding probate. If someone writes a will, it must be proven when they die before any assets can be distributed to the rightful beneficiaries. The probate process does not happen immediately; the estate executor must file paperwork with the court and it can take even longer if someone challenges the will. Using a life estate to transfer property can make for a smoother transition of the property, since it passes directly to the remainder beneficiary.

You will likely still need a will, even if you use a life estate, to pass on other belongings and assets. But having the life estate can at least allow your house, a valuable asset, to pass to someone else more seamlessly.

Life estate pros

  • Using a life estate helps avoid probate so your beneficiary can receive the property faster.

  • The life estate cannot be used to satisfy the tenant’s creditors once they’re dead.

  • The life tenant may be able to qualify for Medicaid benefits and protect the property from estate recovery. (More on this later.)

  • The beneficiary/remainderman benefits from a capital gains tax perspective if they sell the house after the life tenant dies, since the life estate property value gets a step-up in basis.

Life estate cons

  • The life tenant cannot change the remainder beneficiary without their consent.

  • If the life tenant applies for any loans, they cannot use the life estate property as collateral.

  • There’s no creditor protection for the remainderman. Since they own an interest in the property, if they’re sued or owe a debt, the creditors can place a lien on the property.

  • You can’t minimize estate tax. The property’s fair market value is included in the life tenant’s taxable estate once they die. If the estate is worth over $13.61 million in 2024, then estate taxes may be due.

  • You have no control over the remainderman’s heirs. When the remainderman dies their share of ownership in the property will transfer to their chosen beneficiaries, which may not be who the life tenant had wanted. This can become especially problematic if the remainderman predeceases you and died without a will.

  • If the life tenant sells the house during their lifetime, they may not benefit from a capital gains perspective, as the taxes are based on a ratio of ownership interest in the property

Life estates & Medicaid

A life estate can help with Medicaid eligibility, which limits how much income and assets someone can have in order to qualify for the program. Speak with an elder law attorney for more details and check out this state-by-state guide to Medicaid to see requirements in your area.

Can Medicaid take a life estate?

Under certain circumstances if you get long-term care through Medicaid, the state can collect on the cost of care in what's known as Medicaid estate recovery. What assets they can take from the Medicaid recipient depends on the state. Some won’t take assets that pass onto other people outside of probate, which includes property that you had a life estate interest in.

However, there are some state Medicaid programs that will collect your assets, even if they weren’t part of your probate estate. If you live in one of these states, then a house that you pass on to someone through a life estate deed (and even a transfer-on-death deed) could be potentially taken as part of the Medicaid estate recovery program.

For better protection against MERP, you might want to consider a Medicaid trust

Alternatives to a life estate

There are other ways to transfer real estate to a beneficiary (and avoid probate) as part of your estate plan.

A transfer-on-death deed similarly passes on real estate after your death. But unlike a life estate, the transfer- on- death deed can be revoked at any time. Not all states offer transfer- on- death deeds

You can also create a trust. A trust is a more secure and flexible way to transfer assets for your loved ones to use after you’re gone. You’ll also have the choice to get a revocable living trust, which you can change, or an irrevocable trust, which can’t be changed, but comes with more robust tax advantages.

Another good thing about opening up a trust is you can use it for more than just real estate; you can fund the trust with other assets, like bank accounts, or even a life insurance policy.

Learn all about different types of trusts

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