A life estate is a deed that entitles you to remain in your home for the rest of your life and allows your designated heirs to inherit it without probate court proceedings when you die. All they have to do to take possession is present your death certificate at the county courthouse. “It’s kind of the layman’s way, or do-it-yourself way, of estate planning,” says Geoffrey Kunkler, a Dublin, Ohio-based attorney with the law firm AlerStallings LLC who focuses on estate planning.
One drawback of a life estate is that it limits your flexibility. You can’t sell your home or change the heir or heirs without the consent of those named in the life estate. Assuming you’re certain of your intentions, a life estate has some advantages for your heirs apart from avoiding probate. For one, they will inherit the property at its “step up” value—what it is worth when you die, not when you bought it. That reduces or eliminates any taxable capital gain if they decide to sell the home, either immediately upon inheriting it or later. In many states, a life estate also protects your heirs from Medicaid liens.
Wall Street Journal February 9, 2014
