In North Carolina, a life estate is the right to own and rent out real or personal property during one’s lifetime or during the life of another person. A beneficiary of a life estate may not sell or devise the real property or personal property. The owner of a life estate is called the “life tenant.” The person who will get the right to the personal property or real estate after the life tenant's death is the “remainderman.”
Creating a Life Estate Deed Under North Carolina Law
A person who is devising real property to a beneficiary but who wants to remain on the property during their lifetime may draft a life estate deed. In North Carolina, as in other states, this type of deed awards the grantor, the person conveying property, a life estate in the property. When that owner of the property passes, the remainderman gets title to the property.
If real property with standing timber is subject to a life estate, the life tenant or remainderman may initiate a proceeding to sell the timber separate from the real property. A life tenant may plant, harvest and sell annual crops. A life tenant lacks the right to open new mines or quarries, but they can receive the income and profits from existing mines and quarries.
Meaning of "Lifetime Rights" Ownership Interest
The term “lifetime rights” means the rights to own and rent the property during the grantor’s life. A person with a life estate may not sell the property. The primary purpose of a life estate is to provide the person who is giving away the property with a safe and secure place to live for the rest of their life.
The secondary purpose of a life estate is to avoid the expensive and time-consuming process of probate. One advantage of a life estate is that there is no gift tax on a life estate deed.
Life Estates and Taxes
An estate planning attorney can assist the grantor with drafting a life estate deed and recording the new deed with the county register of deeds office. A disadvantage of creating a life estate is that if real property is held by a tenant for life or by a tenant for the life of another, the life tenant must pay property taxes. A remainderman who pays taxes on the property may recover their money in an action against the life tenant.
A lawsuit for recovering taxes paid can be brought only in the appropriate division of the general court of justice of the county in which the real property is located. A life tenant who allows the property to be foreclosed and sold, or sold under levy for failure to pay the property taxes, is liable to the remainderman for damages.
A person with a life estate can sell the right to the property, but the duration of the life in question remains the life of the person to whom the life estate was initially given, not the person to whom the life estate was sold.
Responsibilities of Life Estate Tenant to Person With Remainder Interest
A life estate tenant has a responsibility not to waste, destroy, misuse, alter or neglect the property. If they damage the property during their lifetime, the remainderman may have a claim against the life tenant while they are still alive or, after they die, against their estate.
When a life tenant receives their interest in the property, they should add the remainderman to the insurance policy for the property. This prevents the remainderman from failing to receive the full recovery from the insurance company in the event that there is an accident resulting in the death of the life tenant.
Intestate Share and Election
An elective share offers the surviving spouse the right to choose to receive certain property from the estate. The property may not have been the same property that the spouse who died stated they would give the surviving spouse in the will.
The surviving spouse of a person who dies intestate, meaning without a will, or the surviving spouse who has submitted a petition to the court for an elective share, may take a life estate in one-third of the value of all the real estate the deceased spouse possessed.
The surviving spouse may not take a life estate if they:
- Waived their rights by joining with the deceased spouse to convey the real estate.
- Waived the right to take a life estate in lieu of an intestate or elective share by an express written waiver, such as in a prenuptial or postnuptial agreement.
- Waived, released or conveyed their interest in the real estate during a period of separation.
- Were not required by law to join in a conveyance of real estate to bar the elective life estate.
- Executed a written declaration permitting the deceased spouse to convey or encumber the real estate without the consent or joinder of the surviving spouse.
- Had an interest in the real estate in which the decedent either apportioned to or sold to another person in a partition proceeding, meaning a lawsuit to force the division or sale of real property before the deceased spouse died.
- Were otherwise not legally entitled to the election provided in North Carolina General Statutes Section 29-30 governing election to take life estate in lieu of intestate share.
Life Estates and Medicaid Claims
The rule that North Carolina Medicaid can make a claim against an estate for the amount of benefits it paid during the recipient’s lifetime applies only if there is no surviving spouse or child with a disability. It also applies if the Medicaid recipient owned a house when they died.
If the surviving spouse has a life estate in the home, the real property is usually protected from Medicaid claims after five years from the transfer date. Medicaid excludes a life estate interest as an asset in determining eligibility for Medicaid. Medicaid will evaluate the value of a home for transfer for assets when a surviving spouse transfers real property and retains a life estate.
The value of the transferred life estate is computed by taking the tax value of the real property on the date the life estate is transferred and multiplying by the corresponding life estate value for the age of the individual whose life determines the length of the life estate.
- Wake County, North Carolina: Register of Deeds
- North Carolina General Statutes: Chapter 41, Estates
- North Carolina General Statutes: Article 28, Special Duties to Pay Taxes
- North Carolina General Statutes: Chapter 29, Intestate Succession
- North Carolina Department of Health and Human Services: MA 3226-Estate Recovery
Jessica Zimmer is a journalist and attorney based in northern California. She has practiced in a wide variety of fields, including criminal defense, property law, immigration, employment law, and family law.