There are advantages and disadvantages to deeding your house and retaining a life estate.
If you have a small estate, to avoid probate you may consider quitclaiming your house to a child or someone else (the “Grantee”) and retaining a life estate. This allows you to live in your house for the rest of your life, and when you die, the house transfers to the Grantee. During your lifetime, you continue to maintain the property, pay any mortgage payments, and pay the annual property taxes and assessments.
There are advantages and disadvantages to preparing a quitclaim deed to your house and retaining a life estate. You can decide, according to your circumstances, if the advantages outweigh the disadvantages.
The main advantage in doing this is you can avoid probate, and the house goes directly to the Grantee after you pass away. The Grantee records a death certificate in the recorder’s office at the courthouse, which establishes him or her as the new owner.
The disadvantages are that even though you can live in the house or rent it for the rest of your life, there are restrictions on what you can do with your house. For example, because you no longer “own” your house, you cannot sell it, take out a house equity loan, or mortgage it without the Grantee’s consent. To be able to sell or encumber your property, the Grantee must either quitclaim the property back to you or sign with you on any transfer document. Deeding your house and retaining a life estate can also interfere with Medicaid eligibility.
In conclusion, I have had clients that have quitclaimed their house to a child and retained a life estate. When they passed, the house went to the child without going through probate. However, I have had other clients, who deeded their house to a child, but their circumstances changed, and they needed to sell or refinance their house. They were unable to do it because the child refused to cooperate. Whether you should consider doing this truly depends on your own individual circumstances.
Tom Packer is an Elder Law Attorney serving all Southeast Idaho. As part of his law practice, Tom offers Life Care Planning to deal with the challenges created by long-term illness, disability and incapacity. If you have a question about a Senior’s legal, financial or healthcare needs, please call us.
July 2021