Problems with Life Estates and Other Possessory Interests in Real Property – Have You Thought This Through?
A recent case before the Idaho Supreme Court addressed a dispute involving a life estate left to a surviving spouse. The will of Glenna Mae Wylie-Nelson left her husband, Larry T. Nelson, a life estate in the home and two lots they shared. The will provided that in the event of Larry’s death or sale of the property, the remainder would go to Leslie H. Wylie, Glenna Mae’s son from her previous marriage. Although the property at issue was Glenna Mae’s separate property, Larry and Glenna Mae had lived there together for over three decades. Larry argued that certain maintenance and improvements, as well as property taxes, were paid with community property funds. Larry sought to recoup his “community” interest in the property. The trial court initially dismissed Larry’s claims, but the Idaho Supreme Court reversed that decision and sent the matter back to the trial court for further proceedings.
While the ultimate winner of this case is to be determined, it highlights the thoughtfulness that is needed when granting a life estate or other possessory interest in real property. Legal rights in real property are best thought of as a bundle of sticks that can be divvied out among several different persons or entities. A life estate is one of those sticks. It is a legal arrangement where one person (the life tenant) has the right to use, possess, and enjoy real property for their lifetime. Another person (the remainderman) holds the future ownership of the real property. Full possession automatically transfers after the life tenant's death, bypassing probate.
A life estate can be a powerful planning tool, but they are often ill conceived and under planned for. Often the estate document or deed just references the life estate or other possessory interest without addressing the obligations of the life tenant or the remainderman. This leaves the relationship pregnant with the possibility of disputes.
When creating a possessory right with a reversionary interest, here are some things that should be considered and addressed:
Does the life tenant have a claim to additional ownership rights, such as a community interest based?
If a home, must the life tenant actually and continually reside in the home?
Who decides if the life tenant is no longer capable of living in the home?
Is the life tenant allowed to let someone else live with them, such as a child, caretaker, or spouse?
Can the life tenant lease the property?
Who is responsible for payment of utilities?
Who is responsible for paying property taxes?
Who is responsible for paying for insurance and how much is required?
Who is responsible for payment of maintenance and repairs?
Who is responsible for any mortgage or other encumbrance?
Who decides on repairs if the property is damaged in excess of insurance coverage?
Are there any limitations on the activities that can take place on the property?
Can the remainderman inspect the property and if so, how often?
These are just some of the issues that can arise when a possessory interest is left to one person with a remainder interest to someone else. While no plan can eliminate all possibility of dispute, careful planning in advance can go a long way towards helping everyone understand their rights and responsibilities and hopefully keep them out of court.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.