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Life Estate – Defined

8. What is a “life estate” interest in real property?

A life estate is a temporary transfer of an ownership interest in real property. The transfer is good for the life of the transferee or some other third-party identified in the deed of transfer.

•    Reversion – At the end of the life estate, the land reverts back to the original owner who has a reversion interest.

•    Remainder – At the end of the life estate, the person to whom the property returns has a remainder interest.

The holder of a life estate has the ability to fully use and enjoy the property. The holder cannot, however, cause extraordinary changes to the property or knowingly deplete the property of non-renewable resources (such as digging up minerals). The holder may, however, build new structures or cut timber from the land. Any improvements to the land revert or transfer along with the property at the end of the life estate.

•    Example: Beth transfers property to Carl for the rest of his life. At the end of his life, the property reverts back to Beth or her heirs. If Beth has no heirs, it goes to Fran or her heirs. Beth has a reversion interest and Fran has a remainder interest.

•    Discussion: How do you feel about the ability to transfer a temporary ownership in land for an individual’s life? Should that right be limited by requiring that the life estate be measured by the life of the holder of the interest? Are there any economic utility arguments for or against the government recognizing life estates?

•    Practice Question: Linda works as a tenant on the farm of Eric, a local aristocrat. Upon Eric’s death, he grants Linda the right to live and farm the land for the rest of her life. At the end of her life, however, the land will transfer back to Eric or his children. If Eric is not alive and he does not have any children, the land will transfer to Gladys, Eric’s cousin. What interests do Linda, Eric, and Gladys have in the land?

 

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