Property rights and rules are some of the most complex (and arcane) areas of the law. Of particular importance for estate planning purposes, property rules allow different individuals to each have different “interests” in the same piece of property. It is not necessarily as simple as one person owning each piece property. This presents unique opportunities for estate planning, often providing different options to structure an inheritance, save on taxes, and otherwise best protect the varying interests of all those in a family.
For example, consider the possibility of a “life estate” to pass on real property (a home or land). This tool is easiest to understand in the context of property interests in a family home. The family home is often the largest asset within one’s estate. Protecting the home from potential estate taxes or being spent down to qualify for Medicaid is an important part of many New York estate plans.
Beyond simply transferring ownership to a family members or putting provisions in a will to pass it on to another. One option is the life estate. The life estate is a deed that essentially breaks up the interests in the home–at least for a time. The senior passes on ownership of the home, but they retain the right to live in the property for the remainder of their life. In other words by using a life estate deed, seniors keep some interest for themselves.
In legal terms this means that the senior retains a “possessory interest” in the home. There are different types of possessory interests, like a lease to a rental property. But with a life estate the possessory interest is based on timing, specifically the life of the senior. These issues implicate quite complex and tricky legal matters, and so one should never pass on assets in this fashion without complete understanding of the underlying legal principles involved. Also, there is often no way to reverse this step once it is taken, eliminating much flexibility.
Be Careful
This option can come with some benefits, such as transferring the house outside of probate. However, it is critical not to take this step without professional help, because potential complications remain. Depending on your circumstances, this option may implicate different tax burdens. In addition, it may be more prudent to use living trusts for a more comprehensive planning tool that includes all of your assets, not just a single piece of real property.
For help with these and other estate planning matters throughout New York state, please contact our estate planning lawyers today.