Who Is a Remainderman in a Life Estate?

Estate planning is complicated and there are many ways you can protect your assets after your death. One way is to establish a life estate for the person you want to live there for their lifetime. A remainderman is a beneficiary in a life estate who will inherit property after the life tenant’s death. There can be more than one remainderman if you divide the property. Here’s how it works.

Consider working with a financial advisor as you create or modify an estate plan.

What Is a Remainderman?

A remainderman, a term used in estate and property law, is the person who will inherit property after a life estate is dissolved. A life estate is usually a residence that a person owns for the duration of their life. At the end of their life, the life estate is dissolved and the remainderman, another individual, inherits the property.

The life estate is a type of joint property ownership where the life tenant owns the property, but it will be inherited by another person when the life tenant dies. That other person may be the original owner who established the life estate or it may be a third party.

Let’s say David was married to Ramona. David had a child when he married Ramona. They had no children of their own. If David wanted to ensure that his child would eventually own the family home in which Ramona resides, he could establish a life estate and Ramona as a life tenant. Then, he could name his child as the eventual beneficiary, after Ramona dies, otherwise called the remainderman.

What Is Remainder Interest?

Remainder interest refers to the right to receive property after the expiration of a prior estate or interest. This concept commonly appears in estate planning when someone wishes to leave property to one person for a limited time, after which it transfers to another beneficiary. For example, a parent might grant a life estate to their spouse, with the remainder interest going to their children upon the spouse’s death.

When property is divided through remainder interest, the initial recipient (often called the life tenant) has the right to use and enjoy the property during their lifetime or for a specified period. The remainder beneficiary must wait until this period ends before taking full ownership. This arrangement allows property owners to provide for multiple generations through a single asset.

The creation of remainder interests can have significant tax consequences. When gifting property while retaining a life estate, the value of the remainder interest is considered a gift for tax purposes. This value is calculated based on IRS tables that consider factors like the life tenant’s age and current interest rates.

What Are the Rights of a Remainderman?

The remainderman can exercise a right to own the property only upon the death of a life tenant. As long as the life tenant survives, the remainderman has no right to the property. They do, however, have the right to expect that the life tenant will maintain the property in a good fashion, pay the property taxes and homeowner’s insurance premiums.

They also have the right to stop any sale of the property or any encumbrance of the property, such as a home equity loan. The life tenant may sell the property or encumber it with the remainderman’s consent. The remainderman would be entitled to a portion of the proceeds in the case of a sale.

Why Establish a Life Estate?

Life estates are established to provide for the welfare of another person, the life tenant. The life estate is a kind of joint property ownership where the original owner of the property wants to make sure that the next generation inherits the property after the life tenant has died. A life estate ensures that this will happen where a will cannot.

Under a life estate, the life tenant, who can be removed from a life estate, lives in the property until their death. At that point, the life estate is dissolved and the property is inherited by the remainderman, whoever that may be. While the life tenant survives, they have the rights and responsibilities of a homeowner, except they cannot sell or otherwise encumber the property. They must keep the property maintained, property taxes paid and homeowner’s insurance secured. The life tenant also has the tax benefits of homeownership.

The benefit of a life estate is that it is established by a deed instead of a will. Here lies another benefit of a life estate because the home will be excluded from the probate process because the home is no longer an asset of the estate. The transfer of the property upon the death of the life tenant is accomplished by simply filing the death certificate with the county. There is a potential disadvantage to this, however. If the life tenant is receiving any type of social services such as Medicaid, the state may sue to pay for benefits.

There are other benefits to establishing a life estate. The life tenant may enjoy senior and homestead tax breaks. Also, the remainderman may enjoy capital gains tax benefits if they sell the house since the value of the house is established at the time of the life tenant’s death and not when they purchased it.

There are also some disadvantages to a life estate. The life tenant cannot sell or mortgage the house without the permission of the remainderman. The life tenant is legally vulnerable if the remainderman faces any legal actions. Perhaps most important, a life estate cannot be undone in the face of changing life circumstances.

Bottom Line

A remainderman in a life estate plays a crucial role in property succession planning. This individual or entity is legally entitled to take possession of the property after the life tenant’s rights expire, typically upon their death. The relationship between the life tenant and remainderman creates a balanced system where one party enjoys the property during their lifetime while the other patiently waits for their future ownership rights to mature.

Whether you’re creating an estate plan or have been named as a remainderman, consulting with a qualified estate planning attorney is essential to fully understand your rights and responsibilities in this important legal arrangement.

Tips for Estate Planning

Deciding whether a life estate is right for you and your loved ones can be challenging. That’s where a financial advisor can be helpful. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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