Saturday, 7 December 2013
Law of Trusts: Life Estate
The simplest form of property ownership is a fee simple absolute in possession. A “fee simple absolute” means that the owner has a 100% undivided interest in the property. S/He can use it, sell or convey it, and leave it to someone via a Will.
Fee – inheritable interest in land
Simple – property could be inherited by heirs
Absolute – No restrictions
With a life estate, however, the person holding the life estate has only a partial interest in a property; this person is known as the "life tenant." A person who has a life estate is entitled to enjoy full use of the property during his lifetime, but does not have the right to confer the property upon his death. As a full owner, the life tenant can live on the property, build and/or renovate, rent, or sell the property.
When a life estate is created, the documents must stipulate who the property will go to (a remainderman) upon the life tenant's death. This person cannot take possession of the property until the life tenant's death.
For example, if John dies and leaves his home "to Joe for life, and then to Jane," Jane is a remainderman because she will inherit the home in the future, after Joe dies.
When a life tenant dies, the remainderman's interest in the property immediately becomes active. This is true even if the life tenant attempted to leave the property in a Will to someone else, or has sold the property. A life tenant is unable to grant a greater interest than he himself has in the property, so any attempt by the life tenant to pass the property onto to someone else in a Will is invalid.
The fact that the life tenant's interest ends upon his death means that if he sells the property to someone else, their (the buyer’s) interest ends immediately upon the life tenant's death.
*Another limitation on a life estate is the legal doctrine of waste, which prohibits life tenants from damaging or devaluing the property.