Voluntarily Conveying Property
Article by Heather Chilvers, Coldwell Banker Bermuda Realty. There are a number of reasons as home owners get older that they may think of voluntarily conveying their property to their children and retaining life interest in it. In this article Heather explores some of the issues to consider.
I am going to start with a sentence and I am going to finish with the same sentence… “Get good legal advice and consider every possible scenario carefully before you do this”.
Why? Because this sort of situation can go horribly wrong. It is understandable that you wish to leave some sort of legacy for your children. However, have you considered your own possible expenses as you get older? Healthcare, living expenses, possibly care givers and/or nursing homes, are all very expensive. How are these expenses going to be paid for? Is there a remote consideration that you might have to sell your house in order to pay for these possible costs? If the answer is “yes”, then I would be very careful about any sort of voluntary conveyance to your family.
Once the property is conveyed it legally is no longer yours, and you no longer exercise exclusive control of the premises. If you then become a “life tenant” you may enjoy full ownership rights to the home during your lifetime such as the right to live in the property and/or collect rents from it. But going forth, all decisions concerning the property will have to be considered by all of you together; you, the life tenant and the children as “remaindermen”. If there is a breakdown in the relationship… well you can see where you might end up.
Life interest in property can be used, and is often used in the context of second marriages where a testator (person who makes a will), wants to provide for his or her second spouse without compromising the inheritance of children from a previous relationship. A typical scenario involves a testator leaving the use of the marital home to his or her surviving spouse with the house ultimately going to the children when the surviving spouse dies or relinquishes the life estate.
While these types of gifts may seem like the perfect compromise between beneficiaries, when making the gift of a life estate to someone in your Will, all too often things are not laid out clearly enough. It is vitally important that you and your lawyer consider the following:
Who pays for what?
The gift of a life interest in real estate, either as a voluntary conveyance or by Will – comes with expenses attached.
Nowadays, if disagreements arise and the Will does not expressly identify funds earmarked to cover these expenses or allocate responsibility, or a voluntary conveyance does not spell out the specifics of maintenance, major repairs, insurance and tax expenses, a court will be forced to allocate them. In the worst case scenario, disagreement amongst the beneficiaries could result in a forced sale of the property, with the life tenant’s interest and remainder men’s interests given a capital value on distribution of the sale proceeds.
Above all, it is of utmost importance to talk to a lawyer to ensure your intention to gift a life interest is properly set out in your Will, or if you are giving the property to your children during your lifetime, that you fully understand the implications of doing so. There are more considerations than just saving your family estate tax on death. Taking the time to discuss all relevant considerations with your estates lawyer is the best possible way to ensure that your wishes and intentions are followed, and that your loved ones are provided for in the manner deemed the most fair by you.
So once again I reiterate if you are considering a voluntary conveyance or creating life interest in real estate by Will “Get good legal advice and consider every possible scenario carefully before you do it”.
Legal Consul supplied by Jane Collis, Senior Associate MJM Limited.
Heather Chilvers is amongst Coldwell Banker Bermuda Realty’s Leading Sales Representatives. She has been working in Real Estate for 28 years. If you have a question for Heather, please contact her at firstname.lastname@example.org or 332 1793. All questions will be treated confidentially. Please go on to Heather’s Facebook page – Ask Heather Chilvers Real Estate – to like and share this article.