It has always been one of my favorite recommendations for clients to consider transferring their deed to their children while reserving a life estate in the property. It is a relatively simple transaction where you transfer the property to your kids while reserving your right to use, occupy, and live in the property, which is known as a life estate.
Your children would then own what is called a remainder interest, and this is a vested transfer to them. It is an irreversible transaction, which is done to avoid probate, maximize tax benefits, and preserve the real estate for protection against long-term care expenses. Normally, your property is not sold until you pass away, and your kids may keep it, rent it, or sell it. If it is sold, normally, the proceeds are divided equally among the beneficiaries.
Occasionally, family discord will escalate and require the court to make a determination. The Massachusetts Appeals court recently decided issues regarding a life estate owner’s responsibilities versus the remainderman’s (inheritor’s) obligations where friction arose within the family.
The property in question was located at Cape Cod, and a parent died leaving property to her children and grandchildren, but gave her son the right to live in the house for his lifetime. All went along fine for many years, until the life tenant decided that he did not want to pay taxes and also did not maintain the property. His sisters, the remaindermen, did not want to lose the property to foreclosure, so they paid the taxes to the town. The son again neglected to pay taxes, and the daughters paid them again as well as hired the services of a contractor to make significant repairs to the property in excess of $100,000.00.The daughters then sued the son in order to force a termination of the life estate based on a theory called waste.
The court felt that the son had in fact committed waste by not paying taxes and allowing the property to fall into disrepair. The son was ordered to reimburse his sisters for his share of the taxes and his share of the repair costs. The judge then terminated his life estate and ordered the property to be held by the remaindermen.
Naturally, the son appealed the case, claiming that the property was allowed to be wasted, as he should not have been liable for something called “permissible waste.” The judge did not accept his argument and theory, and the son appealed it to the higher court, which affirmed the lower court. The judgment was written such that the court found him responsible because his neglect resulted in substantial structural deterioration. The court also imposed upon the life tenant a duty of care to maintain the property for the benefit of the remaindermen.
While family intentions are always initiated in the best interest of all of the family and intend to provide all of the benefits available, sometimes, the plan runs afoul of what is proposed by a person seeing the situation differently or not complying with the obligations. The simple deed or even a will, which suggest that the property be owned and maintained by family members, may be subject to interpretation when at least one family member does not comply. It is hopeful that these situations are the exception rather than the norm, but the time, expense, and emotion of making a litigious matter is unfortunate. If the parent knew what was going to occur in the situation, she probably would not have created a life estate in the first place.
Hyman G. Darling, Esq.
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