Estate Planning with Real Estate: Understanding Life Estates
The Dream of Homeownership and Estate Planning
Owning a home is a fundamental part of the American dream for many. Achieving this milestone often leads to the desire to preserve and pass on the asset to future generations. There are various estate planning tools available, from wills to complex trusts. One such method is the life estate.
What is a Life Estate?
A life estate is a way to deed your real estate to your children while reserving the right to live there until you pass away. In this arrangement, the children are called “remainderpersons,” as they will inherit the property after the death of the “life tenant” — you, the original owner. As a life tenant, you’re responsible for the property’s maintenance, taxes, and will receive any income it generates. It’s important to note that a life estate doesn’t create a joint tenancy with the remainderpersons.
Benefits of a Life Estate
One of the main advantages of a life estate is that the property typically bypasses probate, passing directly to the remainderpersons. This is in contrast to a will, where the property would need to go through the potentially lengthy and expensive probate process.
Considerations for Medicaid and Estate Taxes
When using a life estate, be aware that it doesn’t protect the property from Medicaid recovery in Minnesota. The state can place a “zombie lien” on the value of the life estate, aiming to recoup Medicaid expenses incurred by the life tenant. Furthermore, a life estate doesn’t reduce the estate’s value for tax purposes. Unlike trusts, which transfer ownership to the trust itself, a life estate means the property remains in your ownership at death, and its value is included in estate tax calculations.
Professional Guidance for Real Estate in Estate Planning
If you’re considering incorporating real estate into your estate plan, especially through a life estate, professional legal advice is vital. We’re experienced in navigating these complex issues and can help align your estate plan with your goals. Contact us at (651) 661-2626 to discuss your real estate and estate planning needs.