Who Is a Remainderman in a Life Estate?

Estate planning introduces many ways to protect your assets after death. One way is to establish a life estate when you want a specific person to live in your property 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. However, you must follow these rules.

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

What Is a Remainderman?

In estate and property law, a remainderman is the person who will inherit property after a life estate is terminated. 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 dissolves, and another individual, the remainderman, inherits the property.

Life estate is a type of joint property ownership. The life tenant owns the property, but another party inherits the property 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. Say David wanted to ensure that his child would eventually own the family home in which Ramona resides. To do this, he can establish a life estate with 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 is a common estate planning strategy when someone wishes to leave property to one person for a limited time. After this, 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 life tenant has the right to use and enjoy the property. This is 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. ¹

What Are the Rights of a Remainderman?

The remainderman can only exercise their right to ownership 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 condition, pay the property taxes and homeowner’s insurance premiums. They also have the right to stop any sale or encumbrance of the property, such as a home equity loan.

The life tenant may sell or encumber the property with the remainderman’s consent. The remainderman is then entitled to a portion of the proceeds in the case of a sale.

Why Establish a Life Estate?

Life estates provide for the welfare of the life tenant.

A life estate is a form of joint property ownership in which the original owner ensures that the next generation inherits the property after the life tenant dies. A life estate ensures that this will happen where a will cannot.

Under a life estate, the life tenant lives in the property until their death. At that point, the life estate dissolves, and the remainderman inherits the property.

While the life tenant survives, they have the rights and responsibilities of a homeowner. However, 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. The home will be excluded from the probate process because the home is no longer an asset of the estate. To transfer the property upon the death of the life tenant, simply file the death certificate with the county.

There is a potential disadvantage to this, however. If the life tenant is receiving 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. This is because the home value is established when the life tenant dies and not at the time of purchase.

However, there are also some disadvantages to a life estate. The life tenant cannot sell or mortgage the house without the remainderman’s permission. The life tenant is also legally vulnerable if the remainderman faces any legal actions.

Perhaps most importantly, you cannot undo a life estate in the face of changing life circumstances.

How to Determine If a Life Estate Makes Sense for Your Situation

A life estate works well when you want to guarantee that a specific person can live in a property for their lifetime.

It also ensures that a specific person later inherits it. The transfer occurs automatically upon the life tenant’s death. It avoids probate entirely, as long as the death certificate is on file with the county. This makes it one of the simplest ways to transfer real estate outside of the court system.

The trade-off for that simplicity is rigidity. Once you create a life estate, you cannot undo it without the consent of both the life tenant and the remainderman. Say the life tenant needs to move into assisted living and wants to sell to pay for long-term care. Either way, the remainderman must agree to the sale. If the relationship between the parties changes or the owner’s wishes evolve, you cannot modify the arrangement unilaterally.

Medicaid planning adds another consideration. If the life tenant applies for Medicaid within five years of creating the life estate, the transfer may be treated as a disqualifying gift. This can trigger a penalty period during which the applicant is ineligible for benefits. For anyone needing long-term care assistance soon, this timing issue can turn into a costly mistake.

The tax treatment of a life estate can be favorable for the remainderman. When the life tenant dies, the remainderman receives a step-up in basis to the property’s fair market value at the date of death. If the property has appreciated significantly over decades, this step-up can eliminate a large capital gains tax liability when the remainderman eventually sells. This benefit is comparable to what heirs receive when they inherit property through a will or trust.

Before choosing a life estate, compare it to transferring the property through a revocable trust or a transfer-on-death deed. Both of these also avoid probate.

If you value flexibility and the ability to change your plan as life evolves, those alternatives may serve you better. However, if your priority is guaranteeing occupancy for one person and a guaranteed inheritance for another, a life estate does exactly that.

Life Estate Mistakes That Create Problems for Remaindermen

Creating a life estate without fully understanding the restrictions on the life tenant is one of the most common errors.

Without the remainderman’s written consent, the life tenant cannot sell the property. They also cannot refinance or take out a home equity loan. If the life tenant later faces a financial emergency and needs to access the equity in the home, this restriction can create a serious problem, especially if the remainderman does not cooperate.

Failing to account for Medicaid estate recovery rules can undo the intended benefit of the life estate entirely. Most states can place a lien on life estate property to recover Medicaid benefits paid to the life tenant. If the life tenant received years of nursing home care funded by Medicaid, the state may claim a portion of the property’s value after the life tenant dies. This reduces or eliminates what the remainderman actually inherits.

The remainderman’s own financial situation can also create exposure. Because the remainderman holds a future interest in the property, that interest may be reachable by the remainderman’s creditors. A lawsuit, bankruptcy filing or divorce proceeding involving the remainderman could put the property at risk. This can happen even while the life tenant is still alive and living in the home.

Assuming you can easily reverse a life estate if plans change is another mistake that causes problems. It is unlike a revocable trust, which the grantor can modify or dissolve at any time. Instead, a life estate requires the agreement of all parties to undo.

If the life tenant wants to sell the property and the remainderman refuses, the life tenant cannot proceed. If the owner wants to name a different remainderman because of family issues, they cannot make that change without the current remainderman.

Naming a single remainderman without planning for their possible death before the life tenant can leave the property in legal limbo. If the remainderman dies first and the deed does not include a contingent remainderman, the remainder interest passes through the deceased remainderman’s estate rather than directly to the person the original owner would have chosen.

This can result in the property passing to an unintended heir or becoming entangled in a separate probate proceeding.

Life Estate vs. Revocable Trust vs. Transfer on Death Deed

A life estate is created by deed and takes effect immediately.

The life tenant has the right to live in and use the property for their lifetime. The remainderman then inherits automatically when the life tenant dies. The property avoids probate, and the remainderman receives a step-up in basis.

The downside is that the arrangement is permanent once established. Neither the life tenant nor the remainderman can change the terms without the other’s consent. They cannot sell or refinance the property without both parties agreeing.

A revocable trust offers the same probate avoidance and step-up in basis but with significantly more flexibility. The grantor retains full control of the trust during their lifetime. This means they can change beneficiaries, sell the property or dissolve the trust entirely without anyone else’s permission.

The cost of setting up a trust is higher than recording a life estate deed. The property must also formally transfer into the trust to take effect. For families with changing circumstances, that flexibility often justifies the additional expense.

A transfer-on-death deed is available in roughly half of U.S. states and is the simplest of the three options. The property owner names a beneficiary on the deed, and the property transfers automatically at death without probate. During the owner’s lifetime, they retain full control. This includes the ability to sell, refinance or change the named beneficiary at any time.

The limitation is that a transfer-on-death deed does not protect anyone’s right to occupy the property. If the goal is to guarantee that a spouse or partner can live in the home for life before passing to another heir, a transfer-on-death deed offers no protection.

Each option handles a different set of priorities.

• A life estate is strongest for protecting a specific person’s right to live in the property. It ensures the property eventually passes to a named heir.
• A revocable trust is the best choice when the owner wants probate avoidance. It offers the freedom to modify the plan as life changes.
• A transfer-on-death deed works when the goal is simply to pass a single property to a named person at death. There are no restrictions during the owner’s lifetime.

The right choice also depends on the owner’s state. Not every state recognizes transfer-on-death deeds, and Medicaid rules around life estates vary by jurisdiction.

Consulting with an estate planning attorney in your state ensures the tool you choose is right for your property under today’s laws.

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. This typically occurs upon 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 are 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.
• Use SmartAsset’s life insurance calculator to determine, based on several variables, how much life insurance you need based on your circumstances.
• Do you know how much money you will need to save by the time you want to retire? You can use SmartAsset’s retirement calculator to determine the amount.

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