When a parent transfers ownership of her home to her children but reserves the right to live there for the rest of her life, she creates a life estate. The parent becomes the "life tenant" of the property, and her children are the "remaindermen." A life estate is one way to avoid probate, because the children's interest in the property transfers when the life estate is created, not at the parent's death. Ownership is typically conveyed by deed; the deed includes language giving the tenant life estate rights.
All Parties Are Co-Owners
The life tenant and remaindermen co-own the property, although not at the same time. The parent has the right to occupancy during her lifetime, and her children assume sole ownership when she dies. This means the children's ownership interests can be awarded as assets to their spouses if they divorce. Likewise, the children's creditors can place liens against their shares of the property.
Life Tenant Has Certain Responsibilities
During the life tenant's lifetime, she typically assumes financial responsibility for the home. She pays the utilities, real estate taxes and homeowners insurance. If the property has a mortgage lien, she can make the payments, or she and her children might share them. It falls to her to make any necessary repairs and to keep up with maintenance. This can create problems if she's not financially able to do so, especially with significant repairs such as a roof replacement. Nothing stops her children from paying for the repairs themselves, but contributing financially doesn't change the ownership structure. They don't get to take possession of the home sooner because they've now invested money in the property.
Selling Is Complicated
If circumstances change and the life tenant decides she needs or wants to sell the home, this requires the agreement of all remaindermen. One party can't sell the property without the consent and signatures of the others on the documents conveying it to a buyer. However, any party can sell his own share of interest to someone else without the consent of the others. The buyer would become a co-owner with the life tenant and the other remaindermen.
Life Estates Have Few Escape Clauses
There's typically no way out of life estates except by agreement, such as if the property is sold. In other circumstances not involving life estates, co-owners of a property can ask the court to legally partition it if they want to end their relationship. The court then either forces the sale of the property or, in the case of vacant land, divide it into separately owned parcels. This can't occur with a life estate. The court has no legal authority to override it because the co-owners don't own the property simultaneously. However, the children can return their interest in the property to their parent by consent, effectively undoing it.
An Estate Lawyer Can Help
The law surrounding life estates is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact an estate lawyer.