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

[pb4uski]

Life estates are very common, but this structure is very odd. Often it is used to avoid probate, transfer ownership to an heir and retain a life estate (generally the right to use it, rent it out, etc for life).

Many states allow enhanced life estates aka Lady Bird deeds. Our Vermont home is an enhanced life estate deed. We enjoy all the normal rights and obligations of ownership. We can live there, rent it, or even sell it and keep the sales proceeds (that last one is the "enhancement". However, when the second of us dies then it goes to or two kids (called remainder men) and avoids probate, like a beneficiary on a financial account or a transfer on death account.

 

[gauss]

Joint tenancy with rights of survivorship makes this interesting if it is donated to a charity that does not "die". It is guaranteed to get 100% of the property when the "life estate/tenant" dies.

I wonder the estate has other language that precludes transferring one name out to another party other than quit claiming to the co-owner.

In Michigan, I don't think one owner of a property held JTWROS can unilaterally sell or transfer their share of the property without the other party's consent.

I think it has to be unanimous or via court order.

If it were me I would also wish to ask an attorney

1. How much of a breach of his "life estate" responsibilities would it take for a court to terminate it?
2. If terminated, how hard would it be to get a court order to sell the property?

A long shot, but if the other party is as bad with money as OP suggests, this may be an exit strategy (vs never) , but you would need an attorney to advise and pursue this.

The other path may be to officially disclaim the inheritance and walk away and not look back.


-gauss

 

[Kings over Queens]

Life estates are very common, but this structure is very odd. Often it is used to avoid probate, transfer ownership to an heir and retain a life estate (generally the right to use it, rent it out, etc for life).

Many states allow enhanced life estates aka Lady Bird deeds. Our Vermont home is an enhanced life estate deed. We enjoy all the normal rights and obligations of ownership. We can live there, rent it, or even sell it and keep the sales proceeds (that last one is the "enhancement". However, when the second of us dies then it goes to or two kids (called remainder men) and avoids probate, like a beneficiary on a financial account or a transfer on death account.

Thats how my in-law set up their house. They helped my brother in law buy a house years ago so my wife gets the condo to balance the scales.

 

[Hermes]

Thank you all so much for your support and advice.

I utilized my Employee Assistance Program (EAP) to get a 30-minute consult with an estate/probate attorney in Michigan. He read the quitclaim deed and gave the following feedback:

• The lawyer who wrote the quitclaim deed did a terrible job
• Technically as a joint owner, I also have the right to live there (although I have no desire to do so)
• If the other 50% owner fails to fulfill the obligations of a) living on the property b) paying all taxes and c) listing me as a payee on the insurer, then I could go to a probate judge and end his life estate
• BUT ending a life estate doesn't mean a forced sale of the home. And he warned me it's very, very hard to get a judge to force a sale of a home like this. Lots of case law where they don't force the sale of the home. So basically, I'd kick him out and then have to be 50% responsible for the home and taxes until I could get him to agree to sell.
• If something happens on the property, such as him doing something illegal, someone getting hurt, etc. he said it'd be very unlikely someone would come after me, as I don't live there and am not the one responsible for the property due to the life estate.
• Likely not worth getting an appraisal/inspection on the house to show he doesn't keep it up as this would be a very hard thing to prove in court.
• I asked about divesting options. The only thing he could think of was selling it to another relative who would someday like to have the house, which seems like a very unrealistic option.

So basically, I'm a very passive owner with very little risk unless he violates the life estate (he likely will), and then I have to decide if I want to force him out and take on that burden.

 

[Hermes]

In Michigan, I don't think one owner of a property held JTWROS can unilaterally sell or transfer their share of the property without the other party's consent.

I think it has to be unanimous or via court order.

If it were me I would also wish to ask an attorney

1. How much of a breach of his "life estate" responsibilities would it take for a court to terminate it?
2. If terminated, how hard would it be to get a court order to sell the property?

A long shot, but if the other party is as bad with money as OP suggests, this may be an exit strategy (vs never) , but you would need an attorney to advise and pursue this.

The other path may be to officially disclaim the inheritance and walk away and not look back.


-gauss

Thank you so much for these questions. I used them during my call with the lawyer.

 

[MC Rider]

So basically, I'm a very passive owner with very little risk unless he violates the life estate (he likely will), and then I have to decide if I want to force him out and take on that burden.

It's good you got a talk with a lawyer on this. You have a better idea where you stand. Think I might just stand pat and do nothing, but I'm not in your shoes.

 

[samcat]

I agree about the liability. What if someone trips and falls. What if they don't pay the property taxes or insurance. I'm not sure how close you live to the property, but is it going to be difficult to keep track of the situation?

 

[Fermion]

Whew, I read through this thread and now am considering if I have any relatives I hate enough to do this to.

 

[ychuck46]

This is another example of the deceased leaving a big problem for the beneficiaries. Knowing what you do of the other person I would absolutely force a buyout of your half or an outright sale of the home. Depending on the age of the person living in the home they could be there for decades and living much cheaper than they would be if they were paying rent. They have no incentive to sell or buy you out unless you force them to. You said you don't get along with them; personally I would do it out of spite.

 

[engineernerd]

Thanks for the update! Interesting. Is it because of the right of survivorship that you as co-owner can't use a partition action to force a sale of the home even if the life estate has been terminated?

 

[Tracer]

I'm not sure if this is a similar situation or not as no one lives in the property in question. My father took out a Life Estate deed on his house for purposes of passing ownership to myself and two brothers without going through probate. My one brother (I'll call him the "good brother") and other brother (I'll call him the "bad brother" were remaindermen of the property. My "good brother" and I wanted to immediately sell the property after my father passed and to get out of being a "partner" in the property with the "bad brother" who wanted to rehab the house and rent it out or sell at a later date when the market is more favorable to sellers. We wanted out. The bad brother gave us a ridiculous and laughable offer to buy us out. We said hell no! We were not going to be taken advantage of. Unfortunately my father knew full well of our estranged relationship with our other brother. His attitude was we'll just fight it out when the time comes and that's exactly what happened.

We threatened to go to the courts to force a sale which I guess you can legally do in Florida if the heirs cannot agree. The court can force a sale which would leave us all with less than If we sold it on our own after all the expenses involved by going through the courts. That's all it took for the "bad brother" to capitulate. We negotiated a more reasonable buyout and we took the offer and ran.

 

[ktdtx]

So, I guess the minimum you should do is 1-monitor the insurance policies so you are named on them (I think)
and 2-monitor tax payments to insure they are being made.

Good Luck

 

[Hermes]

Thanks for the update! Interesting. Is it because of the right of survivorship that you as co-owner can't use a partition action to force a sale of the home even if the life estate has been terminated?

Apparently Michigan courts aren’t friendly to force someone out of a home if they have ownership. And it’s likely not worth the cost to do so (per the lawyer)

 

[Hermes]

I agree about the liability. What if someone trips and falls. What if they don't pay the property taxes or insurance. I'm not sure how close you live to the property, but is it going to be difficult to keep track of the situation?

Yes, it’ll be hard. I live clear across the country

 

[engineernerd]

Apparently Michigan courts aren’t friendly to force someone out of a home if they have ownership.

This law firm that seems to specialize in "partition action" lawsuits says a co-owner has an absolute right to force a sale or buyout: Forced Sale of Jointly Owned Property (Partition Action) - Attorney's Guide

And it’s likely not worth the cost to do so (per the lawyer)

Jones Property Law agrees with that.

But if the co-owner who refuses to sell has a right of survivorship, I could see how that would complicate things legally.

 

[pb4uski]

Perhaps you could extricate yourself buy buying him out and then selling the property and you would be done. He sounds like the kind of person that if you dangled $40k of cash in front of him that his eyes might bug out and he would take it and then you would be in total control.

 

[gromit]

I have 0 knowledge on this kind of situation.
If I had inherited the 50% interest, I might look into finding a charity that would let me donate my share to them. (I don't know how easy or difficult that would be) Then I'd itemize my taxes and take a tax deduction for the donation. I'd get something out of it without a lifetime of ongoing hassles or problems and the charity would eventually benefit too.

 

[Aerides]

Perhaps you could extricate yourself buy buying him out and then selling the property and you would be done. He sounds like the kind of person that if you dangled $40k of cash in front of him that his eyes might bug out and he would take it and then you would be in total control.

idk, that means he has to move out, vs. having a free house for the rest of his life? Inertia is powerful.

 

[engineernerd]

idk, that means he has to move out, vs. having a free house for the rest of his life? Inertia is powerful.

Yes, and we already know he has created a great workshop for himself and is well-settled in.

 

[engineernerd]

I have 0 knowledge on this kind of situation.
If I had inherited the 50% interest, I might look into finding a charity that would let me donate my share to them. (I don't know how easy or difficult that would be) Then I'd itemize my taxes and take a tax deduction for the donation. I'd get something out of it without a lifetime of ongoing hassles or problems and the charity would eventually benefit too.

Not so fast, the charity could end up with nothing, if OP dies before the other owner does.

 

[engineernerd]

I guess the glass-half-full way to look at this is, even though this is possibly or even likely a zero-value inheritance, if the other owner dies before Hermes does, and hasn't in the meantime caused the loss of the home in a tax sale or via uninsured damage, Hermes might end up with the house.

I do see zero value in terminating the life estate, though. If turning a blind eye to the other owner's failure to live there full-time or pay the taxes and insurance is an option, I think that'd be my choice given what Hermes says about this person's character and what the lawyer said about liability risks. A $100k home can be an easy-come-easy-go kind of thing, not worth paying costs that might only benefit the other owner, but if truly low risk then not worth disclaiming either.

 

[pb4uski]

idk, that means he has to move out, vs. having a free house for the rest of his life? Inertia is powerful.

Yeh, but it sounds like the occupant is someone who wouldn't think things through very much and a number with 4 digits following it would be too much to pass up. Besides, the life estate isn't free... he still has to pay the insurance, real estate taxes, utilities, etc.

 

[imnontrad]

This can get messy. Any way that other person can buy you out? You might also be able to refuse this inhertance also.
I remember when I was little and my GG Grandfather died. Because some of his children had died and their children inherited a split portion, there was something like 20 people who owned the farm. Try to get all to agree to sell at a certain price? Not happening. It resulted in literally years of lawsuits before it was resolved and the property sold. Owning propert with anyone other than a spouse can go south quickly.
Keep in mind that as a 50% owner, you would be responsible for any property taxes, etc that the other person does not pay (and that person has little incentive to pay).

 

[Hermes]

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

100%

 

[Route246]

In the right circumstance, sure. To me this doesn't feel like the right circumstance.

Now perhaps there is more to it and details that we aren't privy to at this point. My concern, for whatever concern I'm entitled have over a circumstance that doesn't involve me, is that the OP is POTENTIALLY exposed to liability through the ownership of the home, but not have the ability to make repairs or take other corrective action, or, he may not be motivated without some form of participation or contribution from the occupant through the life estate.

All this for $50,000, that he may never see given the age of the occupant.

My view, he got the short end of the stick.

This arrangement requires higher order thinking which obviously was not done. In our case I am thinking to just require sale and disposal of all of our assets when we die, pay any taxes REGARDLESS of how tax inefficient it is, and distribute the funds however we state in the will. No holdbacks, not tax planning, no finesse, no this or that, etc. This kind of situation reinforces my sentiment. Well-meaning intent many years back did no favors in terms of maintaining the status quo, it made it worse, at least for one of the heirs.

I know of one case where one son got one house and the other son got the other house. Of course, they appreciated in value differently and the son with the lower value house felt he got short-changed, even though they had a sit-down many years prior and made their choices, signed off and it was all documented. Any chance for something like this and I will run and scream, "FIRE!" (no pun intended). The fact is, inheritance is free money and heirs will take it or leave it. When you give them a chance to comparison shop their bounty it can create unnecessary hard feelings.

Also, no allowances for heirs who "took care" of someone. That needs to be spelled out explicitly and lawyers can take care of that. I know of a case where Jane took care of Mom and John didn't and Jane expected compensation for that and nothing was spelled out in the will and all it did was Mom's worst nightmare and made her kids resent each other. They still don't speak to this day because of this and lawyers got most of the money to boot. Mom is turning over in her grave.