If you’re looking for ways to help your loved ones avoid Probate in Pennsylvania after your passing, then a life estate deed might be a possible option for you. A life estate is a type of joint ownership regarding the property. It allows one person (you) to live in the home until you pass. Then the estate automatically moves to the surviving estate owner – effectively avoiding Probate.
This article will explain how life estate works and what you can expect from Pennsylvania’s life estate law regarding taxes.
What is a Life Estate?
Life estate involves a complex estate ownership arrangement between two adults. A life estate deed involves splitting property ownership between two people at different points in time. Life estates can become a complicated process. Make sure to consult with a knowledgeable Elder Law attorney to determine if this is the right option for you.
Here is a simple overview of how life estate works:
- The estate owner transfers their property ownership to another person.
- The person transferring the property maintains certain rights for the rest of their life (even though ownership moves to another person).
- Once the estate owner passes the property ownership, they are still legally responsible for maintaining the property, receiving any profits, and making necessary improvements to it.
- The new estate owner can’t take possession of the property until the original estate owner passes away.
It’s important to note that the original owner can’t sell or mortgage the estate without the agreement of the second owner. If both owners agree to sell the home, the money will be divided based on their original owners’ age (the older the person is, the fewer shares they receive).
Benefits of a Life Estate
- Avoiding Probate
- Gifting someone the estate without losing the ability to live there
- Allowing a specific person to live in the home until they pass, ensuring the property is passed onto the person of your choice.
- Helping with Medicaid planning
- Transferring property deeds is easier with a life estate deed.
Pennsylvania Life Estate Law Regarding Taxes
Even though life estate isn’t part of the Probate process, it’s still taxable under PA’s Inheritance Tax once you pass (even though the property belongs to the surviving owner). How much the property will be taxed will depend on how you’re related to the person receiving ownership. Additionally, depending on the estate’s size and tax threshold, it could also be subject to federal taxes.
Additional Pennsylvania Life Estate Law and Process
There are many life estate laws in Pennsylvania. For a complete review of all of Pennsylvania’s life estate laws, read PA’s Long-Term Care Handbook 440.4 Real Property here.
Life Estate’s Impact on Your Medicaid Qualification
If you choose to move forward with a life estate deed, it can cause you to become ineligible for Medicaid if you try to apply for it within a five-year time frame. Make sure to consult with an experienced Elder Law lawyer in Pennsylvania regarding your situation.
Contact Rebecca A. Auld – A Trusted Pittsburgh Elder Law Attorney
Developing a comprehensive estate plan is necessary to secure your future. Rebecca is here to help explain and guide you through your planning options. She’s available for a free, 30-minute consultation to begin answering your questions and make sure you’re on the right track moving forward.