The California Life Estate, A Powerful Estate Planning Strategy   

The California Life Estate, A Powerful Estate Planning Strategy   

By Attorney Paul Hanks of Ironclad Living Trusts

In California, the benefit of a life estate often originates from the inclusion of life estate provisions set forth within a living trust. An example would best illustrate the need for a life estate. The utility of a life estate often arises with second marriages. At the time of the second marriage, let’s assume only one spouse owns a home, and that spouse upon his or her death wants that home to pass to their own children. However, if the homeowner spouse dies first, the concern arises that the surviving spouse may struggle with finding a quality place to live for their remaining lifetime.

The life estate solves this quandary and is the best of both worlds. The life estate grants an exclusive right of lifetime occupancy in the home to the non-owner spouse, who is known as the life tenant. Upon expiration of the life estate, the  home passes to the remainder beneficiates set forth in the homeowner’s living trust.

A life estate comes with multiple conditions to protect and preserve the home. The parameters of a life estate and the obligations imposed on the life tenant can be very extensive. Often the terms and conditions of a California life estate include:

(1)         The life estate grants to the life tenant the exclusive right to occupy the home.

(2)         The life estate is for the duration of the remaining lifespan of the life tenant at which time the life estate terminates.

(3)         The life tenant is solely responsible for the payment of any mortgage, insurance, property taxes, homeowners association fees, as well as the home’s maintenance and repair.

(4)         The life tenant is prohibited from allowing roommates or a new partner to move into the home.

(5)         The life estate is not assignable or transferable and is not subject to disposition in any fashion by the life tenant such as by subletting or sale or through a Will.

(6)         The life tenant may not encumber the property, or allow liens against it, and may not in any way use the property as collateral or security for any debt, loan, or obligation.

(7)         The life estate can provide for early termination based on a breach of any of the obligations and conditions imposed on the life tenant. Early termination can also be based upon the life tenant’s placement in a nursing home or assisted living facility.

(8)         At such time as the life estate terminates, the home shall be subject to the distribution provisions to the beneficiaries named in the living trust who are living at the time of the termination of the life estate, who shall be considered the remainder beneficiaries.

A California life estate serves as a powerful vehicle and achieves the greatest balance between the interests of the life tenant and the interests of the ultimate beneficiaries who will inherit the home. The incorporation of life estate provisions within a living trust is a very delicate task of drafting and is best achieved in consultation with a quality estate planning law firm.

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