Life estate deed not popular, but can be good transfer tool

By Jada Gaines CONTRIBUTOR

One of the most underused estate planning tools is a life estate deed (LED). Though LED’s should be used with caution, there are a number of goals it can satisfy versus making an outright transfer of home ownership to someone.

An LED is a deed that effectively and legally transfers real estate from one party to another. The parties to an LED are known as the “life tenant” and the “remainderman.”

The life tenant is the current owner(s) of the property who transfers future ownership in the property to the remainderman, who is the beneficiary.

The life tenant reserves the right to remain in the home during their lifetime. Upon their death, the lifetime right of use and enjoyment of the property then terminates and the remainderman becomes the full owner.

There are a few common benefits of an LED:

• Avoids probate. Upon the death of the life tenant(s), the remainderman becomes the full owner of the property. The property associated with the LED keeps the home out of the probate process.

• Asset protection tool. An LED can serve as asset protection and Medicaid compliant tool protecting the home from nursing homes. Note that the deed transfer is still subject to the five-year lookback period.

• Guaranteed residency for life tenant(s). The life tenants have granted themselves the right to live in the property during the remainder of their lifetime.

• Less expensive. An LED is typically a less expensive tool than creating a revocable living trust or an asset protection trust.

• Remainderman’s creditors can make no current claim. The current creditors of your named remainderman cannot make a