Something that is being seen more and more as older property owners are conveying or transferring property to their loved ones, is the reservation of a life estate within the deed that is filed of record. Most people think that conveying property is one size fits all, but not all conveyances are equal. Meaning that a property owner can convey all of their property to their loved one and retain no ownership or they can convey the property but reserve a life estate.
An example is, if John Doe wants to go ahead and convey his property to his only child Jan and does not reserve a life estate interest in the property, then once the deed is filed of record Jan would own the property outright and be the only vested owner of record. At that point the property may lose certain tax exemptions such as the over 65 exemption or homestead exemption.
Same scenario but John Doe reserves a life estate in the deed conveying the property to Jan. Once the deed is filed of record Jan has vested ownership, which would give her peace of mind but would allow John Doe to retain possession of the property, along with the tax exemptions that he qualifies for. Because he is no longer the only person with a vested interest in the subject property, if he wants to sell the property it would have to be approved by all involved, meaning that Jan would have to want to sell the property as well. It would be the same if it was Jan wanting to sell the property, she could not do it without John Doe joining in the conveyance. If both parties are in agreement they can both execute the closing documents to convey the property to the new owner.
While having possession of the land the person with the life estate continues to pay the taxes and the liens against the property, if there are any.
In either of these examples John Doe can’t undo the deal or change his mind. The life estate reservation is only in affect for most cases, as long as the person holding the life estate is alive. Once the person with the life estate is deceased, the person they conveyed the property to would be the only vested owner. So if John Doe passed away and Jan decides to either sell the property or take a lien out on the property, the title company would see the reservation of the life estate in the deed filed of record. They would then require that John Doe join in the execution of the documents or obtain evidence that he is deceased, such as a death certificate.
There is a newer thing we are seeing as well and that is a Transfer on Death Deed also known as a TODD Deed. This type of document would allow John Doe to convey an interest now in his property to Jan but still occupy the property, receive the tax exemptions, etc. The difference is now if John Doe wants he can change his mind and cancel that deed at any time before death. Meaning if for some reason John Doe doesn’t think that Jan should have the property he could rescind the deed and then turn around and convey the property to one of his other children. John Doe would also have the right to sell the property and keep all of the sales proceeds without having to have the grantee of the deed join in.
If this is something that you are thinking you need to do as you age, we recommend that you contact a Real Estate Attorney in your area to find out what best fits your situation. If you already hold a life estate or have been conveyed property and the grantor reserved a life estate and you have questions on selling or financing that property please don’t hesitate to reach out to us. As always we are here to answer any question you may have about closing your real estate transaction.