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This post discusses the difference between a life estate and an enhanced life estate. These are essential estate planning and Medicaid planning tools, but enhanced life estates are available everywhere.

What is a Life Estate?

A life estate is created when you give your property to another person, but during your lifetime you retain the ability to live in it and use it.  For example, I could give my property to my kids, but until I die, I’m allowed to live here my entire life because I reserved for myself a life estate.  I am a lifetime tenant and they can’t kick me out and they can’t sell it. With a life estate, if you do end up needing to sell it during your lifetime, since you’ve already given it to the kids, the sale price and profits would be apportioned between you and the children and your children would need to consent to the sale. 

What is an Enhanced Life Estate?

In Vermont, Florida, and Texas, among some other states, we have enhanced life estates available. These are different than life estates. They operate relatively the same way, but there some big differences between them. First of all, during your lifetime, you actually haven’t given away the property yet. Although the deed says upon your death, it goes to your kids or your friends or whomever. During your lifetime, you still have the full ability to sell it, to mortgage it, to do whatever you want with it, without getting their permission. With a regular life estate, if you as the life tenant wanted to sell it perhaps, you would need to get the remainder amend where the people you gave it to, to give you permission to sell it. You couldn’t sell it on your own. With an enhanced life estate, you can. You retain 100% control over the property during your lifetime.

During your lifetime, for Medicaid purposes, it’s kind of like an incomplete gift. You’re giving it to people when you die, but during your lifetime it’s yours, so it’s counts as your homestead, or primary residence, typically. Enhanced life estates are very beneficial for Medicaid planning.

I know this can seem a little confusing, but with both life estates and enhanced life estates upon your death, the property is going to somebody else, and during your lifetime you have full use of it. The main difference between a life estate and an enhanced life estate is the power you have during your lifetime and what you can do with it during your lifetime without getting permission from the people you’re giving it to.

If you have any questions about this or think maybe a life estate or enhanced life estate is a good fit for your estate plan, you can call my office (802) 442-9800, or schedule a consultation with the button below.

William C. Deveneau is an attorney practicing in Southern Vermont, including Bennington and Manchester, and New York, including Albany, Colonie, Hoosick Falls, and Troy.