Pros and Cons of Creating a Florida Life Estate: Part Two – The Drawbacks

In the last post on Florida life estates, we looked at some of the potential benefits of sidestepping probate by conveying real estate using a life estate. This simple and effective transfer allows a life tenant to have unfettered use of the property while alive, while allowing another party to have the ultimate title to the property once the life tenant dies. However, if you choose to do so, it is in your best interests to exercise extreme caution. Here are a couple very real dangers of using this estate planning resource.

You lose control

The biggest problem with a life estate is the loss of control. Perhaps you are the owner. You choose to execute a deed transferring ownership to a close relative and retain a life estate so that you can live in the home for life. Upon death, the home will immediately be transferred to that relative without going through probate. However, since you no longer hold complete title in the property, you are no longer permitted to sell or mortgage the property, nor can you change your mind. If for any reason you begin to think twice about your decision, it is too late. The property is not yours anymore. You simply have the right to occupy and use for life.

You don’t know what might happen after you die

When planning for death, one of the most challenging issues for most people to confront is that they cannot predict the future or have any real control over what happens when they are gone. While this is a scary proposition, it can also provide a strong motivation for using comprehensive estate planning techniques, such as trusts.

Many people use a life estate to provide for a spouse. Consider this common example. John is a widower whose first wife died when they were in their 40s. They had no children. John remarries at 70 years of age. His new wife has children from a prior marriage too, but they have been abusive and distant. John wishes to take care of his wife by letting her use the home until she passes away. But then, he wants the home to go to a close friend. He executes a life estate. Unfortunately, after executing the deed, his wife dies before he does. At this point, the friend is the owner. If the friend has financial troubles or cannot pay the taxes, the home could be lost or sold out from under John, leaving him with nowhere to live. Therefore, leaving a home to someone while you may still be living in it requires absolute trust. Even then, it is hard to know what could happen in the future.

Trusts are almost always a better choice

Although it may seem like a simple, streamlined approach to avoiding probate, that should not be the focus of your estate plan. While probate can be costly and troublesome, the process can be fairly simple if handled by a competent and experienced attorney. The cost of establishing a Florida trust is usually small in comparison to the potential problems that it can avoid. Here are just a few things a trust can do that a life estate cannot:

• Control who uses the property for years to come;
• Establish spend-thrift provisions to ensure the property is not lost;
• Determine who pays the taxes, maintenance, and insurance;
• Set forth a process for dealing with heirs who fight over it;
• Set forth a neutral, non-relative to manage the trust property;
• Include cash, investments and other tangible property in addition to the property; and
• Be changed if necessary (unless irrevocable).

If you have questions about your estate and want to set up a plan that achieves your goals, contact an experienced Florida elder law attorney. With three offices throughout The Villages, the Millhorn Elder Law Planning Group can help you put together an estate plan as unique as you are.