Life estate

The ownership of a life estate is of limited duration because it ends at the death of a person. Its owner is the life tenant (typically also the 'measuring life') and it carries with it right to enjoy certain benefits of ownership of the property, chiefly income derived from rent or other uses of the property and the right of occupation, during his or her possession. Because a life estate ceases to exist at the death of the measuring person's life, the life tenant, a temporary owner, may short-term let but cannot sell, give or bequeath the property indefinitely (including assuming it could pass to heirs (intestate)) or creating a purported document leaving it to devisees (testate).

A life estate pur autre vie (Law French, "for the life of another") is held for the rest of the lifetime of a person who does not hold the estate, known as the cestui que vie (Law French, "the person who lives"). This form of life estate arises where a life tenant has disposed of the property, assuming such a disposal does not trigger any special forfeiture under the life interest instrument. It also arises where the grantor chooses to make the measuring life that of someone other than the life tenant's life. A life estate pur autre vie is most commonly created in one of two circumstances.

• First, when the owner of property conveys his interest in that property to another person, for the life of a third person. For example, if A conveys land to B during the life of C, then B owns the land for as long as C lives; if B dies before C, B's heirs will inherit the land, and will continue to own it for as long as C lives.
• Second, if A conveys land to C for life, C can then sell the life estate to B. Again, B and B's heirs will own the land for as long as C lives.
• In either scenario, once C dies, the ownership of the land will revert to A. If A has died, ownership will revert to A's heirs. The right to succeed to ownership of the property upon the expiration of the life estate is called a reversion. However, the remainder interest granted to a third party (A to B for life, with a remainder interest in C), is called "remainder".

A clear distinction should be made with an estate for (a) term of years, interpreted as lease or licence.

At death, assuming no mis-dealings to certain innocent purchasers, the property involved in a life estate falls into the ownership of the remainderman (pl. remaindermen) or reverts to its grantor (all of which confusingly can be called 'reversions' and 'reversioners'). There is a small market for reversions in real estate, which necessitates a buyer to carry out enhanced documentary due diligence and physical checks.[1]

A land owner of an estate cannot give a "greater interest" in the estate than he or she owns. That is, a life estate owner cannot give complete and indefinite ownership (fee simple) to another person because the life tenant's ownership in the property ends when the person who is the measuring life dies. For instance, if Ashley conveyed to Bob for the life of Bob, and Bob conveys a life estate to another person, Charlie, for Charlie's life [an embedded life estate], then Charlie's life estate interest would last only until Charlie or Bob dies. Charlie's life interest or pur autre vie interest (interest for the life of another, whichever has applied) and most often the remaining rights of ownership in the property (the 'reversionary interest') devolve to the persons under the terms of the will/rules of intestacy/declaration of trust/trust deed (UK) or will/rules of intestacy/'grant or deed of life interest' (or similar) (U.S.) in remainder or revert to the original grantee, depending on terms of Ashley. Such a life estate in the U.S. can also be conveyed for the life of the grantor, such as "A conveys X to B until A dies" and in the UK by trust transferring upon trust or assigning rather than conveying X.

If a life tenant purports to transfer the underlying 'reversionary' interest, which a life tenant never has, this constitutes an actionable breach of trust for damages and may constitute criminal fraud however may not entitle the ultimate reversioner (or substituted beneficiaries) to be able to obtain a court declaration that the property is their own if that property is in the hands of an innocent purchaser for value without notice (bona fide purchaser).

Financial and physical responsibility falls to the life tenant under the legal doctrine of waste, which prohibits life tenants from damaging or devaluing the asset. In short, as the life tenant's ownership is temporary, failing to maintain or reasonably protect the asset resulting in its diminution in value, or indeed, destruction constitutes a cause of action for the reversioner.

A further limitation is the rule against perpetuities in many states and countries which prohibits long-running pre-19th-century style successions of life tenancies and may result in the premature and compensation-entitling termination of such successive life interests. In England and Wales this is fixed at one lifetime, or 80 years whichever is longer.

Selling property while keeping a life estate is commonly known in France as "viager"[2] where it is used more often than elsewhere, most famously in the case of Jeanne Calment, the longest lived human ever recorded.

In the combined jurisdiction of England and Wales since 1925 a freehold estate intended to be 'held' as a life interest takes effect only as an interest enjoyed in equity, specifically as an interest in possession trust. The other type of land ownership is leasehold and although most long leases are for a period of between 99 and 999 years 'leases for life' will be interpreted in often unpredictable ways as either as a licence or a lease.

In the United States, a life estate is typically used as a tool of an estate planning. A life estate can avoid probate and ensure that an intended heir will receive title to real property. For example, Al owns a home and desires that Bill inherit it after Al's death. Al can effectuate that desire by transferring title to the home to Bill and retaining a life estate in the home. Al keeps a life estate and Bill receives a vested fee simple remainder. As soon as Al dies, the life estate interest merges with Bill's remainder, and Bill has a fee simple title. An advantage of such a transfer is that it makes the use of a will unnecessary and eliminates the need to probate the asset. A disadvantage is the small risk of a fraud on the part of beneficiary Bill, if he could easily show in a particular jurisdiction an unfettered fee simple, he could sell the estate prematurely to an innocent purchaser such as when Al is on vacation. A second disadvantage to the grantor is that provision for any remainderman (or men) (party C) is irrevocable without the remainderman's consent. "Beneficiary deeds" have been statutorily created in some states to address this issue.

The intestacy laws of certain American states, such as Arkansas Delaware, and Rhode Island limit the surviving spouse's rights (inheritance) to the deceased spouse's real estate to a life estate. Louisiana, applying civil law, has a similar default provision in intestate successions called a usufruct, which is only over community property and ends with the earlier of death or remarriage.

Some American states allow for an enhanced life estate deed, in which the grantor retains the ability to transfer to property to a third party without the consent of the remainderman.[3] If the enhanced life estate holder still owns the property at the time he or she dies, and the remaindermen survive the life estate holder, the property automatically passes to the remaindermen outside of probate.[4] Enhanced life estate deeds are also sometimes referred to as Lady Bird Deeds.

The intestacy laws of England and Wales from 1 October 2014 provide for £250,000 (or the whole non-joint estate if less) and 50% of any excess to the spouse, remainder to adult children. This abolished the remaining 50% being enjoyed as a life interest which had applied from the 1920s.[5]

The surviving spouse (and rarely, others) benefit from survivorship of any joint property.

The arrangement in the first paragraph would in the UK be interpreted as an interest in possession trust and is usually avoided as for inheritance tax is considered 'reservation of benefit' requiring fully backdated sums of annual income tax on whatever market rent ought to have been paid to the legal owner, in England and Wales for continued enjoyment of the asset.[6]

A valuation is typically derived from the present value of the net benefit derived by the life (or lives) over the residual term of the interest. Where these valuations are based on a single life, reference can be made to tables such as life tenant factors by gender and age. These factors are prepared taking into account life expectancies and prevailing interest rates for a specific jurisdiction or purpose. An example is a table of life tenancy factors that is used to determine the proportion of a property attributable to a particular life tenant for any stamp duty payable upon its transfer. More complicated examples can involve impaired or joint lives and specialist advice is usually required such as that provided by an actuary.

Life estates are measured either by the life of the property recipient (pur sa vie), or by the life of some other person (pur autre vie).

It is becoming increasingly popular for private investors to place funds into a life tenancy investment. This type of investment is being offered as an alternative to traditional buy to let and is becoming increasingly popular in the United Kingdom with over £30 million worth of Life Tenancies being delivered in 2018.[14]

• Interest in possession trust
• Life annuity
• Reverse mortgage
• Tontine