The Life Estate: What is it???

Here’s the scenario:

You’re grandmother is about to move into a nursing home. You don’t like this idea, but it’s in her best interest.

You get her all settled in, sign all the documents on her behalf (you can do this because she visited TN Legal Docs and got her Durable Power of Attorney made), and head home.

That night your husband starts reviewing the paper work.  “Honey, what happens if her money runs out and we can’t pay the nursing home for their services,” he asks.  This is very problematic because your grandmother has let you and your husband move into her house.  “Could the take the house from us if they don’t get paid,” you wonder.  “Is there anyway to guard against that?”

Short Answer: Yes, but let me explain.

As always, first things first.  Lets define some terms.

  1. Life EstateA life estate is an estate in land that only lasts for as long as the particular person is alive.
  2. Life Estate Per Autre Vie:  A life estate per after vie is a life estate that is measured on another person’s life.

Ok, so we’ve got our terms lets discuss…..

In the scenario above, there is a way (actually there are several ways, but this post is about life estates) to guard against the nursing home taking the house if they’re not paid.

Here’s what you do:  Your grandmother, assuming she is still “of sound mind” could execute a deed wherein she gives you and your husband her home.

Then, she could reserve a life estate in the property.  This way, if she ever get’s out of the nursing home and wants to move back in, she’ll have that option available.  But the best part: if the nursing home gets paid, they likely will leave the house alone.  All because of the life estate.

Lets say the nursing home doesn’t get paid, sues, and wins a large judgment.  Well, there’s no money to pay the judgment so the nursing home’s only option is to start attaching liens to your grandmother’s property.  They could then auction that property off and get their money from the sales.

BUT, if your grandmother reserved a life estate in the property, they’ll likely never touch it.  And here’s why.  If they were to attach a lien against the home and take it to auction, the only thing they could auction (and the only thing a buyer could purchase) would be your grandmother’s life estate in the home.

The potential buyer would have a life estate per autre vie in the property.  In other words, they would only “own” the property while your grandmother was still alive.  Upon her death, it would automatically transfer to her granddaughter and husband.  No buyer on earth would want that property.  And the nursing home knows this.

So the life estate is an excellent tool for taking property out of the hands of potential creditors.  BUT NOTE that once the grandmother sets up the life estate (or otherwise gifts property away) she has to live a certain number of years (typically 5 years) after she executes the deed in order to completely take it out of a creditor’s hands.

And that’s just one great example of effectively using a life estate.  There are several other situations where a life estate would be a smart choice.  For example, if you want to leave property to your kids but you want to avoid probate and still be able to use the property will you’r alive, the life estate is the way to go.  The only potential downside is that you likely wouldn’t be able to sell the property due to the the whole life estate per autre vie deal (although you’d be surprised what some people are willing to buy).

Give it some thought….

Good Legal Health.

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