What’s the best fit for you? Life Estate vs. Occupancy Trust
Life Estate and Occupancy Trust: What is it?
Taking the first step to plan the future of the home can feel overwhelming, but there are many tools that can help you ease into it and ensure a secure future for you and your loved ones.
Two common tools that can help are life estates and right of occupancy trusts. A life estate grants someone the legal right to live in a home for the rest of their life, but they don’t own it outright. On the other hand, a right of occupancy trust allows someone to stay in the home under specific conditions set by the trust, giving more control over how long they can remain.
Life Estate vs. Right of Occupancy Trust: Key Considerations
- A life estate and right of occupancy trust may seem similar at first glance, but here are some key differences to help determine which option is best for you:
- Probate Avoidance
- Life estate: Skips probate. On the life tenant’s death, ownership automatically transfers to the remainderman.
- Right of occupancy trust: Avoids probate. As the trust owns the property, the trust dictates the property’s next steps when the occupancy ends.
- Control Over Property Distribution
- Life estate: Remainderman’s consent needed. The life tenant can live in and use the home but cannot sell or mortgage it without the consent from the remainderman.
- Right of occupancy trust: No control unless the trust allows. The beneficiary has the right to live in the home but has no ownership interest and cannot sell or mortgage it unless the trust allows it.
- Ownership and Control
- Life estate: Control for a limited time unless specified with the remainderman. The life tenant can sell their life estate interest, but the buyer’s rights end when the life tenant passes. If the life tenant and remainderman agree, they can sell the entire property and split the proceeds.
- Right of occupancy trust: Trust has full control. The trust owns the home, so the beneficiary cannot sell their interest, ensuring long-term control over the property.
- Financial Responsibilities
- Life estate: More general responsibility. The life tenant typically pays property taxes, insurance, and maintenance, while the remainderman may cover major repairs.
- Right of occupancy trust: Specified responsibility. The trust document can specify who is responsible for which expenses.
- Property Tax Implications
- Life estate: Depends on state tax laws. Some states may limit property tax benefits for life estates.
- Right of occupancy trust: Depends on state tax laws. Property tax benefits may also be limited depending on the state.
Which option is right for you?
The choice between a life estate and an occupancy of trust depends on your specific goals for the future.
A life estate may be the choice for you if: you know you want to live in your home for the rest of your life and have a specific person in mind that you want to directly pass your home down to.
A right of occupancy may be the choice for you if: you are looking for more flexibility in deciding on financial responsibilities and occupancy conditions while having more control over your property’s future.
Each situation is unique, and estate planning can always seem complex to begin with. We’re here to help you every step of the way. If you’re considering these tools and are ready to start your planning, contact us today! Our team can help guide you in the right direction to make the best choices for your long-term goals.