A life estate deed can be a great tool for passing property after death. A couple might give the property to their children and reserve a life estate for themselves until the last of the two dies. The couple retains their homestead exemption status for life, and at death the property will automatically belong to the children without the need to probate anyone’s will. Also the child will have a stepped up tax basis in the property which is the fair market value on the date of death of the last life tenant. An additional benefit is the fact that Medicaid will not count the life estate as a resource if the life estate deed was executed five years prior to Medicaid application, and the property would not be subject to Medicaid Estate Recovery since it will never be probate property. That all sounds like a win, win situation, right?
It is, except for one thing. If the couple decides to sell the property they will need the children to sign off on the sale because the children are now joint owners with the parents. The parents own use of the property NOW, and the children, as remaindermen, own the FUTURE use of the property.
Often a life estate deed is given with the goal of keeping property in the family, but that is not always the case. Sometimes the life tenants want to sell the property to obtain funds for any number of purposes. With this in mind, before signing a life estate deed it is important to make sure the remaindermen would be willing to relinquish their interest and sign off on any sale of the property.