Advice? Pitfalls to avoid? Just inherited 50% of a house (but the other person has a "life estate"

[Hermes]

After the passing of a relative (no grief for this one, not a great person), I just found out I own 50% of their fully-paid-off house in Michigan. The other 50% owner has a "life estate" on the home:

A life estate is reserved for [other owner] in the Premises so long as all of the following conditions are met:

A. [other owner] continues to reside on a full-time basis in the Premises or the life estate may be terminated;

B. [other owner] pays the real estate taxes accruing on an annual basis affecting the Premises or the life estate may be terminated;

C. [other owner] maintains insurance protection with a reputable insurance company covering the Premises and all buildings located thereon with full replacement cost insurance and copies to [me]

I don't speak to the other owner because we've been on bad terms for many years due to threats of violence. The rest of the family doesn't speak to them either. However, we've been able to amicably discuss this and the parts of the will via text. I don't trust this person as they are terrible with money and overall have some questionable ethics. I believe the house and land are worth about $100k. I've offered to let them buy me out from my 50% of the house; no response yet.

Has anyone been through something like this or have other relevant experience?

• I know we have to file a Michigan property transfer affidavit within 45 days
• I believe he also needs to maintain the value of the property?
• Should I get an inspection and appraisal done?
• What pitfalls do I need to be aware of and take proactive action against?

 

[RetiredHappy]

If it is going to be messy and $50K is not alot of money to you, I would disclaim it. Otherwise, consult an attorney or someone who is familiar with local law on how to proceed.

 

[Aerides]

You have 50% of a huge PITA. Do not throw any money at this as the chances are you'll never see a penny. But you may have liabilities. Talk to a lawyer, soon. Your best bet is going to get walking away from this. The other party doesn't seem likely to pay you.

 

[cathy63]

So the current tenant owns 50% of the home and also has a life estate in your 50%? Who will eventually inherit the 50% that the life tenant owns?

You have no legal responsibility to pay the taxes or upkeep. The life tenant is allowed to rent it out and they could theoretically damage it or fail to pay the tax and end up reducing the value of your future inheritance. You will get a step-up in basis for the portion that you inherit when the life tenant passes.

I don't believe you can benefit from getting an appraisal or inspection now because today's value is irrelevant. You should talk to a lawyer though to find out if there are any specific gotchas in Michigan.

 

[sakowitzm]

Maybe the other guy would agree to buying you out for 40% or even 30% of the value? Free money to you, if you can get it. Otherwise, I'm with the majority here. Walk away.

 

[pb4uski]

It sounds to me like the OP and this other person each inherited 50% of the property, but the other person has a life estate (right to use the property subject to certain conditions) as long as they pay 100% of the property taxes and home insurance. When the other person dies, their 50% goes to their designated heirs and the life estate disappears.

Another tact might be for the OP to try to buy out the other person's interest for $x and gain full control of the property and then sell or rent it.

I would think that there would be step up in basis just like inheriting any property. The appraisal value for 100% with no life estate would be the starting point. Then the OP's 50% of the appraisal value would be reduced for the fair value of the life estate and the other person's 50% appraisal value would be increased for the fair value of the life estate. So the valuation will have a bit of a twist to it but a valuation specialist should be able to deal with it.

From what the OP wrote it sounds like a problem waiting to happen. It would be best to either buy the other person out to gain 100% control or sell the 50% with the life estate encumbering it to the other owner, preferably for cash or failing that with seller-financing duly recorded. If the OP goes that route, use Intra-Family Mortgage | National Family Mortgage ® as a middleman to administer the loan, chase collection, foreclose if needed.

 

[pb4uski]

So the current tenant owns 50% of the home and also has a life estate in your 50%? Who will eventually inherit the 50% that the life tenant owns?

You have no legal responsibility to pay the taxes or upkeep. The life tenant is allowed to rent it out and they could theoretically damage it or fail to pay the tax and end up reducing the value of your future inheritance. You will get a step-up in basis for the portion that you inherit when the life tenant passes.

I don't believe you can benefit from getting an appraisal or inspection now because today's value is irrelevant. You should talk to a lawyer though to find out if there are any specific gotchas in Michigan.

From what the OP wrote, I think the other person's heirs would inherit his 50% when he dies and the life estate goes away.

The life tenant could NOT it out because one of the constraints is that the life tenant lives there full time. A lawyer question, but I think that even if the life tenant lived there full time and rented a room that the OP would be entitled to 50% of the rent since the OP is a 50% owner.

I think the OP and the other person would get a step up in basis now because they are each inheriting an interest in real estate albeit with an encumberance in once case and a life estate in another.

 

[pb4uski]

...I've offered to let them buy me out from my 50% of the house; no response yet. ...

The value of what you inherited is less than 50% of the $100k estimated value because the $50k is encumbered by the life estate (the other person's right to live there for paying 100% of the property taxes and home insurance).

In theory, the value of the life estate would be the present value of 50% of the fair value rent, less 100% of real estate taxes less 100% of home insurance (or something like that). If the other person is 100 years old then the life estate propably isn't worth much, but if they are 20 then it would be worth a lot.

My point is that you could settle for less than 50% of the $100k estimated value and still be a good deal for you.

 

[Hermes]

Thanks all for your thoughts thus far. I believe I inherit the property if the other 50% owner dies.

[original owner dies] then the premises are conveyed and quitclaimed to [other 50% owner + address] and [me + address], as joint tenants with full rights of survivorship, a parcel of real property (the "Premises") located in the Township of ... described as follows;

[description of the land parcel and house]

A life estate is reserved for [other owner] in the Premises so long as all of the following conditions are met:

A. [other owner] continues to reside on a full-time basis in the Premises or the life estate may be terminated;

B. [other owner] pays the real estate taxes accruing on an annual basis affecting the Premises or the life estate may be terminated;

C. [other owner] maintains insurance protection with a reputable insurance company covering the Premises and all buildings located thereon with full replacement cost insurance and copies to [me]

 

[Hermes]

The other owner isn't likely to move out, they've built a workshop there and really made it their own.

They are about 50 years old.

I'm not inclined to walk away without a payout. I recognize this is emotional, but I'm not a fan of rewarding an awful person. But I may come around on that.

 

[cathy63]

From what the OP wrote, I think the other person's heirs would inherit his 50% when he dies and the life estate goes away.

Yes, that's why I asked who gets the other 50%. But now I see from a later post that they both hold the property as a joint tenants with right of survivorship. So I believe OP will own 100% of the property if the life tenant pre-deceases OP.

The life tenant could NOT it out because one of the constraints is that the life tenant lives there full time. A lawyer question, but I think that even if the life tenant lived there full time and rented a room that the OP would be entitled to 50% of the rent since the OP is a 50% owner.

I think the OP and the other person would get a step up in basis now because they are each inheriting an interest in real estate albeit with an encumberance in once case and a life estate in another.

I didn't see that there was a condition about having to live on the property before. I don't know if that was added later or I just missed the quoted part.

I don't think the OP would be entitled to a portion of any rent received or that OP gets a step-up in basis before taking full ownership. That's not how a normal life estate works. But it's also not normal to require the life tenant to live in the property, so who knows. OP really needs to talk to an attorney in MI who can explain all of the rights/responsibilities of a remainderman.

 

[cathy63]

The other owner isn't likely to move out, they've built a workshop there and really made it their own.

They are about 50 years old.

I'm not inclined to walk away without a payout. I recognize this is emotional, but I'm not a fan of rewarding an awful person. But I may come around on that.

A whole lot of time could pass before a 50 yr old dies.

It's very premature to think about walking away. Most likely this property is just going to be something you only think about once per year to check if they've paid the property tax and sent you the insurance certificate. Otherwise, you don't have any benefits or liabilities until they die or move.

 

[sengsational]

Seems like the co-owner would have zero motivation to buy-out the OP....he's got 100% control of the property now, why pay to get nothing extra?

Given there's no inclination to hand over the rights without compensation, and there's no way compensation will happen, I guess it's best to just try and put the whole thing out of your mind.

 

[Lewis Clark]

One lesson for the rest of us: Do not put our heirs in a position like this.

 

[Koolau]

One lesson for the rest of us: Do not put our heirs in a position like this.

I would think such an arrangement would be for, say, an elderly mother (maybe age 85) who wants to stay in the same home she's been in for a long time (with, say, her son or daughter). Likely, she would pass in a very few years, clearing the way for the other person to own the home.

Using this type of inheritance for a 50 year old seems fraught with all kinds of unpleasant issues. Maybe that was the idea. Reaching out from the grave to cause heartburn for as many people as possible.

 

[skipro33]

I would run, not walk, away from this. The liability risk is HUGE. He's required to insure the home for loss, not the home owner from loss. All it takes is this resident to get a pit bull and have it attack someone (or any other personal injury lawsuit) who sues the homeowner, you, for 50% of what ever some judge and jury awards them. I would sell my half as soon as I could, taking the first offer that came along. Start with your co-owner. It's not like the house has any sentimental value to you and it's not like $50K is worth the trouble.

 

[Sunset]

^^^^^^^ I'm not a lawyer.

But if an owner can be responsible for any suable damages done by a person living in the house then this means all landlords are at risk for what a tenant does.
Seems a stretch to me.

 

[skipro33]

^^^^^^^ I'm not a lawyer.

But if an owner can be responsible for any suable damages done by a person living in the house then this means all landlords are at risk for what a tenant does.
Seems a stretch to me.

In most aspects, landlords are at risk for what a tenant does. Landlords have control. They own the property, control the property and have rights to enter and fix hazards. If they fail to repair something dangerous, then they're negligent and have contributed to the injury.

BUT, I do stand corrected:
Looking deeper, the OP is not the landlord, he's a remainderman.
In a life estate, the life tenant has exclusive possession, full control responsible for maintenance, safety and liability. The remainderman has no right to enter, no right to repair and not right to manage. He's more like a future owner, not the present one. and since they have no control, the law does not impose liability on them.

I’d still be looking for the exit here, but for different reasons than pure liability.
A life‑estate situation like this gives you all of the downside and none of the control. You can’t make decisions about the property, you can’t force repairs, you can’t force a sale, and you can’t compel the life tenant to act responsibly. Meanwhile, the value of your 50% is heavily discounted because it’s tied up until the life tenant dies or voluntarily leaves — and he’s only 50 years old.
Even if you’re not on the hook for day‑to‑day liability (the life tenant is generally responsible for premises liability), you are tied to someone you don’t trust, for potentially decades, with no practical way to improve the situation. That’s the real risk.
If you can sell your interest — ideally to the co‑owner, but even at a discount — that’s probably the cleanest outcome. You get cash now, you eliminate the long‑term entanglement, and you avoid spending years monitoring taxes, insurance, and compliance with the life‑estate conditions.
Talk to a Michigan attorney so you know exactly what rights you do and don’t have, but emotionally and financially, I’d be looking for a way to unwind this sooner rather than later.

 

[gregzx]

Dealing with a life estate is already tricky, but it sounds incredibly stressful when it's with someone you have a bad history with. Definitely push for that buyout if you can, because being tied to a co-owner who is terrible with money is just a recipe for constant anxiety.

 

[Lewis Clark]

I would think such an arrangement would be for, say, an elderly mother (maybe age 85) who wants to stay in the same home she's been in for a long time (with, say, her son or daughter). Likely, she would pass in a very few years, clearing the way for the other person to own the home.

This example is very different from the OP's situation, where the home was left to two people who disliked each other.

 

[pb4uski]

It is an extremely odd set up. Technically, I think the OP could move on since he is a 50% owner (not that he would from what he wrote). While the other owner has a life estate, it doesn't say that it is exclusive. Definitely lawyer time to see what the OPs rights, responsibilities and potential obligations are under this odd set up and whether there are any pressure points that the OP can use to induce the seller to buy him out.

 

[EastWest Gal]

^^^^^^^ I'm not a lawyer.

But if an owner can be responsible for any suable damages done by a person living in the house then this means all landlords are at risk for what a tenant does.
Seems a stretch to me.

This is not a landlord/tenant situation though. This is a co-owner situation, sort of. I too am concerned about liability issues, not damage to the property, but if someone got injured on the property. You may not be liable, but as a deep pocket, you could still be sued and rack of legal fees even if a suit is unsuccessful.

If you don't need the property for any reason, you may wish to disclaim the inheritance and move on. Getting the other person to buy you out will probably difficult at best. This seems like a big headache.

 

[Franklin]

It is an extremely odd set up. Technically, I think the OP could move on since he is a 50% owner (not that he would from what he wrote). While the other owner has a life estate, it doesn't say that it is exclusive. Definitely lawyer time to see what the OPs rights, responsibilities and potential obligations are under this odd set up and whether there are any pressure points that the OP can use to induce the seller to buy him out.

When you meet with your lawyer ask if it's possible to donate your 50% to a patient charity. Preferably a charity that does not mind the wait and maybe take the tax write-off. Just a thought, if they take Cars and boats why not life estates? Find a charity that your other 50% really dislikes! BTY, interesting post.

 

[Kings over Queens]

Looking at this from a different (but similar) angle, the OP has inherited 50% of a house that is also owned and occupied by what one could consider a squatter. Only worse. They have the same ownership in the property but 100% legal rights to occupy, and while they are contractually responsible to maintain the house, they aren't contractually obligated to maintain the house.

What a mess.

 

[CalBird]

Ownership comes with liability. If you don’t like the liability or can’t handle the uncertainty of the liability, get rid of the ownership.