Legally Speaking: Life estate pitfalls

By Linda Toga, Esq.

THE FACTS: My mother’s will provides that her house will be sold and the proceeds divided equally between me and my brother. However, because she was concerned about needing long-term care, a few years ago she signed a deed transferring the house to my brother and retaining a life estate in her favor.

THE QUESTION: Am I likely to see any of the proceeds when the house is sold?

THE ANSWER: Unfortunately, if your mother has already passed away, it is unlikely that you will get anything when the house is sold unless your brother is willing to essentially gift you one-half of the proceeds. That is because a will only controls the distribution of assets that are owned by the decedent at the time of her death.

Here, your mother does not have an ownership interest in the house but simply a right to live in the house until her death. When she dies, that right dies with her. As such, the provision in the will pertaining to the division of the proceeds from the sale of the house will be ignored.

If you mother is still alive, competent and sorry that she transferred the house to your brother, she can remedy the situation in a number of ways. She can, of course, revise her will so that you receive a larger portion than your brother of other assets that may be passing under her will. She can also change the beneficiary on her nonprobate assets like IRAs, 401(k)s and/or life insurance. Neither of these strategies require your brother’s cooperation, but they will only work if your mother has assets worth about one-half of the value of the house.

If your brother is cooperative, your mother’ assets are limited and she is not already receiving needs-based government benefits, your mother and brother can sign a new deed either adding you as a co-owner or transferring the house back to your mother. The will would then control. This solution will require the preparation of a new deed and transfer of documents and the filing/recording of the deed but will not require your mother to change her beneficiary forms or her will.

If transferring the house again will put your mother’s benefits at risk, she and your brother can sign a written agreement in which (1) your mother states that it was not her intent in transferring the house to “gift” it to your brother and (2) your brother states that when he sells the house, he will split the net proceeds 50/50 with you.

If the agreement provides that you are an intended beneficiary of the agreement between your mother and your brother, and specifically states that it is binding upon the heirs, successors, assigns and executors of the parties signing the agreement, you will have an enforceable legal right to one-half of the proceeds.

It is important that any agreement that may be signed by your mother and brother pertaining to the house include the “heirs, successors, assigns and executors” language since, without that language, the agreement, like your mother’s life estate, will die with your mother.

Because there are so many issues to consider when deciding if and how to insure that you receive a share of the proceeds from the sale of her house, your mother should discuss this matter with an experienced estate planning attorney. The attorney can explain the pros and cons of each option that may be available to your mother so that she can make an informed decision. Only then can she be sure that her actions will not adversely impact her down the road and that her wishes will be honored.

Linda M. Toga, Esq. provides legal services in the areas of estate planning, probate, estate administration, litigation, wills, trusts, small business services and real estate from her East Setauket office.