Estate planning in Texas involves many different legal documents that determine what assets go to who upon a decedent’s passing. Life estates are just one type of legal document used in this process.
Wealth transfer is more important than ever before
Despite being the world’s wealthiest country in terms of gross domestic product, the United States has some of the worst income and wealth inequality out of all highly developed nations. In today’s world, more people live paycheck-to-paycheck — handing down wealth can substantially improve these people’s lives. Also, even though most millionaires accumulate their wealth independently, intergenerational asset transfers will still make millions of Americans rich over the next decade.
What is a life estate?
Estate planning consists of all the work that goes into arranging how families or individuals divvy out assets that belong to their estate. It’s usually done through creating and filing legal documents such as advanced health care directives, wills and trusts.
A life estate is a home that someone owns and has the legal right to live in throughout the duration of their life. The term also refers to legal documents that establish life estates. Life tenants can live in their life estates forever, but can’t sell or borrow against them.
The main reason behind creating life estates
Everyone has an estate, no matter how small or large. When someone dies, an estate consists of all the assets someone owns. Probate is a legal process whereby courts have a say in how families handle estates upon the owner’s passing. It often leads to situations where assets aren’t distributed according to how the decedent wanted.
The estates of decedents who have valid wills upon passing away aren’t involved in probate. An essential principle of estate planning is making sure probate isn’t necessary.
Homeowners create life estates to ensure a particular family member or friend gains ownership over the property upon the homeowner’s passing, thereby skipping the probate process.
Estate planning is a difficult process that requires diligent research. Understanding life estates is one of many concepts families should know about before setting an estate plan in stone.