Should I Deed My Property to My Children and Retain a Life Estate?

by Olivia Wann

A life estate deed is a form of estate planning in Tennessee.  An attorney would prepare a quit claim deed to transfer your real estate to your children and you retain a life estate. This means that you, as the life tenant, retain the right to live on the property until your death. You pay the taxes, the insurance and the maintenance. If you rent the property, you keep the proceeds.

On death, the real estate automatically transfers to the remainder interest holder, in this case your children without probate.

What are the pros of a life estate deed?

• Your estate can avoid probate. If there are survivorship options on all your accounts and the real estate is in a life estate deed, it is more than likely your estate would not require probate. This saves time and money.
• There is no need for another deed to be prepared because the remainder interest holder automatically owns the property on your death.
• The life estate deed can potentially prevent a TennCare-Medicaid recovery of your property should you require long term care that is paid for by the State of Tennessee providing that the property was transferred 5-years prior to applying for TennCare.

What are the cons of a life estate deed?

• Once the deed is signed and recorded, you, as the lifetime tenant, cannot sell the property and retain all the proceeds because all you own is the life estate portion. This is a loss of control of the property.
• If you wish to change how the property is titled, you must have the consent of the remainder interest owners. 
• A Revocable Living Trust preserves the power to amend the trust including the beneficiaries which is more flexible if you change your mind.

If you are interested in a life estate deed as an estate planning tool, be sure to consult with an attorney experienced in estate planning to provide you the guidance to make an informed decision considering your personal family dynamics.