Answer: A life estate deed is a good tool for general estate planning, probate avoidance and Masshealth/nursing home planning. Make sure to review the pros and cons with an estate planning lawyer, as there may be a tax effect if you sell in the future. Beyond that, if you are moving forward with the life estate deed, let's talk about how to preserve flexibility.
Special language can be added to your deed where you reserve the right to change your mind. The special clause is called a “power of appointment”. In fact, a recent Massachusetts appeals court decision supports the use of these special clauses. Here are the facts of the case:
An elderly mother executed a deed to her three daughters, reserving a life estate to herself. This gave her the right to live at the home for the rest of her days. She reserved a special power of appointment, allowing her to change the people who will inherit her property.
Three years later, she reduced one of her daughters ownership interest from 33% to only 5%. After the woman died, the diminished daughter challenge the deed, arguing that mom “couldn't give her something and later take it away”.
The daughter lost at trial and appealed. The court supported the mother’s use of a power of appointment stating that” she granted something less than a full remainder interest”. The Court continued, “ the reservation of the power of appointment resulted in a grant of a lesser estate… the daughter’s interest was in the nature of fee simple defeasible”.
The decision clarifies and supports the ability for a senior citizen to gain the benefit of a life estate deed, but also reserve the right to change his or her mind. By keeping such power, the parent remains in the drivers seat, in the relationship. The children still need to behave, in order to receive their inheritance.
Attorney James Haroutunian practices real-estate law, estate planning and probate at 630 Boston Road, Billerica. He gladly invites questions at firstname.lastname@example.org or by phone at 978-671-0711. His website blog is found at www.hlawoffice.com. This column is published for informational purposes only and not to be relied on as legal advice, in any manner.