The life estate and the right of occupancy are two specific estate planning tools that can be used to provide for family members (or friends) who depend on another person’s estate planning to give them a place to live. They may be created during life or at death by means of a will or trust. This typically includes the person’s spouse and/or children, but sometimes may include the person’s parent(s) and/or siblings, as relevant to who is living at home. Let us discuss each approach.
A life estate can be used to grant to one or more life tenants a limited ownership interest in real property. The duration of a life estate is measured by someone’s lifetime, the typical measuring life is that of the life tenant. A life estate can be granted on the face of a deed or can be included in the terms of an ongoing trust that owns the real property.
A life tenant has both rights and obligations associated with the real property. That is, the life tenant has the right of enjoyment of the property and can rent the property and collect the rents. However, the life tenant is also obliged to pay the real property taxes, homeowner’s insurance, and the upkeep and maintenance of the property during their life tenancy.
A life tenancy deserves consideration when planning for a surviving spouse or child. That is, the life tenancy ensures these persons a place to live while at the same time ensuring that at the termination of the life tenancy the property passes to another owner(s). For example, at the death of a surviving spouse (life tenant) the surviving children of the deceased spouse (original owner) come into full enjoyment and responsibilities of ownership (i.e., they can use, sell or rent the property). Alternatively, the parents may gift a life estate for their child who lives at home and has an income but gift the real property to their other children at the end of the life estate.
Another option is the right of occupancy. It is similar but lesser than a life estate. A right of occupancy is like a license to occupy part or all of the real property for a period of time and under certain conditions. It is not a legal interest in the real property itself and its existence may or may not appear on the face of the deed.
A right of occupancy may be created through the original owner’s will, trust or by way of a gift deed with or without a written occupancy agreement. The rights and responsibilities of the occupant may be specified in a written occupancy agreement between the occupant and the owner.
Unlike a life estate a right of occupancy may simply be a non-exclusive right to live at the residence. That is, the occupancy may be limited to a right to live in one dwelling or even just one room (with shared use of the kitchen, etc.) on the real property. It may also be subject to terms and conditions such as paying utilities, ordinary maintenance and repairs, but not necessarily taxes and major repairs. Also unlike a life estate, a right of occupancy is not transferable. An occupant cannot sublet their right of occupancy and collect rent from a tenant.
A right of occupancy deserves consideration when the intended occupant cannot pay for and/or manage the real property and someone else is going to own and be responsible for real property during the life occupant lifetime. For example, a parent may give real property to one child as the owner subject to a lifetime right of occupancy for a disabled child to live in the parent’s primary residence. The right of occupancy will qualify the dependent child (life occupant) to file a homeowners’ exemption and to claim the now very limited parent to child reassessment exclusion on the primary residence. The child who owns the real property does not even have to live at the residence but will nonetheless receive the real property tax savings.
The foregoing discussion is not legal advice. Consult a qualified attorney for guidance. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.
“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”
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