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What is a Life Estate . . .

By
Industry Observer with RETIRED / State License is Inactive Inactive License Oregon

What is a Life Estate?

Many years ago, when I became licensed I had my "first" sale.  It was a life estate.  The concept of life estate was the only thing I actually retained from real estate school.  Glad I remembered, because it came in handy.  Although I didn't draft the legal document, I was able to consult with the elderly seller and suggest this to her.  I marketed the property FOR SALE as a "Life Estate."

A life estate is an estate which is limited to the life of the individual, current owner of the property.  It's a legal arrangement where the holder of the life estate sells the property and becomes a "life tenant" retaining the right of use and possession of the property for the duration.

The life estate arrangement can be beneficial to anyone who wants to remain in their home, but cash out.  An example might be: an elderly person who might have a progressive illness and doesn't want to move from their home into a nursing facility.  If they are medically able to remain in their home, a life estate is a wonderful alternative, and life choice.

To many people, living in their home is a comfort and a security that can be leveraged if they can sell under a life estate. 

As I mentioned, my first deal was a life estate and it benefited the elderly woman who was in her 90's suffering with Parkinson's disease.  We sold the property under a life estate and she remained in her home of 45 years for almost 2 years after recording. 

Life estates can be a great "reverse mortgage" alternative.  Competent legal counsel, familiar with life estates, should be retained for the proper legal drafts and recordation.

Life Estate Fully Explained

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Carla Muss-Jacobs has RETIRED effective May 1, 2018

Representing Buyers in the Portland Metro Real Estate Market | Clackamas Multnomah and Washington Counties | Since 1999

Carla Muss-Jacobs, REALTOR®, ABR, CEBA, ePro
Principal Broker/Owner ~~ INACTIVE

Carla Muss-Jacobs' retirement became effective May 1, 2018

Direct: 503-810-7192 

 

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Comments (47)

Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

Having that piece of knowledge in your tool belt of experiences gave you a different way and maybe the only way to do that deal at the time.  I will hopefully remember a life estate can be a way to go about a transaction in the future.

Apr 27, 2011 11:22 PM
Jesse Skolkin
Independent New York State Certified Real Estate Appraiser - Fresh Meadows, NY

It can be difficult to place a value on a property with a life estate in place (acturial tables are frequently used to estimate the present value of a property at an estimated time in the future). 

Such transactions are frequently between family members.

Apr 27, 2011 11:29 PM
Morgan Evans
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

Sounds kind of like buying a home with a tenant in place even though I'm assuming that the life estate tenant isn't going to be paying you rent? I guess each situation can be negotiated to find a positive outcome.

Apr 27, 2011 11:42 PM
Gloria Laughton Allston
COLDWELL BANKER RESIDENTIAL BROKERAGE - Princeton, NJ
Realtor(NJ)/Broker(NY)

Thanks for the refresher Carla - the "life estate" term in your post caught my eye and, although I have never done one, I felt I should read more.

Apr 28, 2011 12:54 AM
Michele Myers
Prudential Homesale Services Group - Harrisburg, PA
Harrisburg/Hershey Realtor

Great feature. I learned about this in pre-licensing class but have never had to deal with it.  Thanks for the reminder.

Apr 28, 2011 12:59 AM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Last year I was working on a short sale for a client. When we ran title we found out she owned it as a life state. Wells Fargo had made a loan on a life estate! The grantor of the life estate refused to release his interest, even for money. It rendered the house unsellable to a third party.

Apr 28, 2011 01:01 AM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Carla,

It can work, but for arms length buyers won't pay a proper price, which of course is based upon an acturarial valuation of life expectancy.

Brian

Apr 28, 2011 01:17 AM
Dr. Paula McDonald
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

I have not encountered one of these.  What a great learning experience this was from you right out of the shoot.  Good feature.

Apr 28, 2011 01:22 AM
Anna Tolstoy
Coldwell Banker Residential Brokerage - Natick, MA

Carla, great informative post. Did you ever sold another life estate afterwards? 

Apr 28, 2011 02:45 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I didn't care for it on the Real Estate test, so I learned enough to pass the question. However, you explain it rather well in your post....good stuff and thank you

Apr 28, 2011 03:03 AM
Lorraine or Loretta Kratz
Crescent Moon Realty, Inc. & Land N Sea Auctions. - San Marcos, CA
Certified Negotiation Consultants

Nice to know, I have not had anyone that was interested or wanted to get involved. Living trust seem to be the vehicle in vogue. Glad to have the information.

Apr 28, 2011 04:27 AM
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Carla, I can see where a life estate would have some benefits to the right seller. Thanks.

Apr 28, 2011 05:05 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Hi Irene -- you're welcome.

Hey Susan . . . thank you for the comments, helpful to round it out!!

Hi Greg -- Probably, along with the other "forms"  HA HA HA

Hey Christine . . . it's not a bad concept

Hi Renee -- It helped me more than "riparian rights" HA HA HA

Hey Patricia . . . always appreciate your comments!

Hi Gay -- you're sweet!!

Hey Karen . . . thanks!!

Hi Cheryl -- it's a good concept if it can benefit.

Hey Jeff . . . I don't run across it often, as with you.  But good to remember our RE lessons :-)

Hi Jane -- complicated, but can be workable

Hey Fernando . . . funny you should mention "prison" -- did you read my lasted post today??

Hi Beth -- thank you for the detailed comments.  Elder Law attorneys are good resources, and good tip!!

Hey Hella . . . seems that this post triggered something.  Glad to know it might be an option

Hi Ronald -- Again, if this inspires a thought and might help -- it sure benefited my client!!

Hey Gita -- THANKS fOR THE RE-BLOG!!  You never know when what we learned will come into play.

Hi Eileen . . . You never know what tool will help, that's for sure!!  Thanks for you comments.

Hey Jesse -- When I did this it was sold to a non-family member.  It worked for them.

Hi Morgan . . you're right, each situation can be negotiated to positive

Hey Gloria -- never hurts to "refresh" :-)

Hi Michele . . . funny what we remember LOL

Hey Dave -- now that seems to be a downside.  Thanks for your comments a good thing to note.

Hi Brian . . . In my transaction, the woman had owned the property for 45 years, it was paid off eons ago, and the price the buyer paid was fine by her and it wasn't "proper price" but for her, it was.

Hey Paula -- yes, it was and it helped my friend and first client Martha, a lovely woman.

Hi Anna . . . I stopped taking listiings when I became an Exclusive Buyers Agent, so I've not listed anything. 

Hey Richie -- you're welcome and at least you passed LOL

Hi Lorraine/Loretta . . . Living trusts are something else altogether, but one way for estate planning.

Hey Michael -- to the right seller, absolutely.  It sure worked out well in my transaction.

Apr 28, 2011 05:30 AM
Donna Paul
Keller Williams Realty Gold Coast - Dix Hills, NY
Long Island Home Specialist,All About Real Estate

Carla: This is a great question... so many people ask this questions and I'm glad that I could also share with them your blog whenever it's needed .Thanks for sharing.

Apr 28, 2011 05:51 AM
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA

Carla:

Interesting blog.  My husband is an attorney who has many elder law clients.  To my knowledge he has only prepared a few deeds which have life estates attached to them.  They involved elderly family members, not the owner of the property, who have lived in the house for many years.  The owner of the property makes a provision in their will or trust so that relative can stay in the home until the relative passes away.  After the owner dies, a deed is prepared which has the life estate provision on the deed. 

Apr 28, 2011 06:12 AM
Barb Merrill
Cactus Mountain Properties, LLC - Tempe, AZ
GRI, Associate Broker

Thanks for bringing to rememberance this valuable tool!  It is a wonderful alternative to a reversed mortgage.

Apr 28, 2011 06:25 AM
Brenda Mullen
RE/MAX Associates - San Antonio, TX
Your San Antonio TX Real Estate Agent!!

Wow.  I have never heard of this before.  It truly sounds like a really good alternative to a reverse mortgage.  I am constantly learning here :)!

Apr 28, 2011 01:30 PM
Ken Barker Realtor® GRI, E-Pro Certified
Dilbeck Real Estate - Burbank, CA

Carla - A little late to the party here. This is a great explanation. There is a lot to know for the senior community. Reverse Mortgages is all the that I had learned heavily on. Life Estates was in my RE vocabulary but I did not have it in my repertoire. Now I know how to offer a solution to a potential senior.

Apr 29, 2011 04:35 PM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

This is a topic we see very little on but is great information.  Thanks for the post.

Apr 30, 2011 06:03 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Hi Donna . . . it may come in handy!  Thanks.

Hey Erica -- yup, out the gate!!

Hi Evelyn . . . I'm sure the Life Estate can be created this way.  The fundamentals were outlined here.  Thanks for the comments ;-)

Hi Barb -- yeah, I know.  The things we remember LOL

Hey Brenda . . . in some cases it is!

Hi Ken -- you are welcome anytime, fashionably late never hurts.  Hope you can include this and if someone can benefit, all the better.

Hey Gene . . . THANKS FOR THE RE-BLOG!!  You're right, we do see little information, but it can work!! 

Apr 30, 2011 09:47 AM