Apparently, I have created confusion…it probably won’t be the last time…
I found your last letter had me confused. What is the difference between an irrevocable/revocable trust on your house and a Life Estate?
I will try and make this clear but no promises! 😊
A life estate is an ownership of real estate limited to only your right to the use and occupancy of the property for your life. You own nothing at your death, but while you are alive you actually own a portion of the property with fancy tables that spell out the percentage, subject to your age and monthly interest rates. Obviously, the older you are the less your life expectancy and thus the value of your life estate. So, let’s say that you own your house right now. You could transfer the house to your kids now (they would be owners) but you could retain the right to use it and live in it for your life. You would then continue to own something and your kids would own something, although the amount you own will be a moving target. Upon your death, your “life estate” is extinguished and your children just go on owning the whole house without probate.
A trust, revocable or irrevocable, is a concept where another person (or persons or entity) holds your asset(s) for you, subject to an agreement. This person is called the trustee. This agreement creates something akin to a new entity, called a trust. When first created, the trust does not own anything. For example, once the trust agreement is formed, you can transfer the deed to your house into the name of the new trust (Lawrence Davidow could transfer his house to the Lawrence Davidow trust). In this case, 100% of the house is owned by the trust, but it also avoids probate at death.
The difference then between a life estate and a trust is that the trust becomes an entity that can own your whole house, whereas, in a life estate, you share ownership of the house with someone else, although you retain the use and possession limited to the duration of your life.
Let me know if anyone is still confused. There are pros and cons as to whether a life estate or trust is the better tool for you to use, but that is not the question I am addressing in this letter.