Life estates and seniorsNelson A. Locke, CRMLlife estate, language and construction of life estates
A discussion of their application to reverse
A life estate is an estate with a duration measured by the life of
a designated person or the survivor of a group of persons. A life
estate is an estate smaller than a fee simple. It is less than full
ownership, but it is full possession.
The owner of a fee simple can create a life estate by using
language that clearly shows the intent to create a life estate for
a spouse or co-resident, rather than make a full transfer of title
via a fee simple conveyance. There are no particular types of words
required - just a clear and unambiguous expression of intent. The
very same life estate can then be transferred to yet another
person, but it will expire upon the death of the person who was the
Life estates may be created to last for the life of a single
transferee, for the lives of two or more transferees, for the life
of the transferor, or until the death of the survivor of two or
A life estate is a combination of rights and privileges offset
by certain duties, absence of rights and liabilities. The most
important right of a possessor of a life estate is the right of
possession, which is protected by law. The principal privilege is
that of making beneficial use of the land or receiving rents
arising from his letting of the land. Except for the right to
convey a fee simple, the rights of a possessor of a life estate are
nearly identical. However, a possessor of a life estate must not
waste the asset; that is to say, he must care for the land and not
allow it to be damaged or diminished in value.
With modern life estates, the issue is usually the language used
in the construction. The general rule is that when a grantor has an
estate in fee simple (which is pretty much an infinite right to own
and use the land), a life estate gives the grantee the use for the
duration of his life. What if the grantor was not the holder of a
fee simple, but rather a possessor of a life estate himself? The
law would generally hold that the subsequent grantee's life estate
would end when the grantor died.
You can also use a life estate that is defeasible - one that
might revert to the original grantor before the grantee's death. A
good example of this would be an estate granted to a church for as
long as the church uses the land for church activities, or an
estate that reverted upon divorce or abandonment. If the designated
event or prohibited act took place, the estate would revert because
the language clearly defined the conditions of continuance.
If you are evaluating an estate and having problems deciding
what type of estate exists, remember this: If there are no
conditions on future use or length of ownership, you are probably
reviewing a fee simple estate. If the person possessing the estate
does not have a right to dispose, you are probably reviewing a life
estate. A life estate is less than a fee simple estate.
So, how does all this enter into the reverse mortgage picture?
When seniors apply for a reverse mortgage, they must meet certain
requirements. First, in the case of fee simple, if the property
owner is married or the property is co-owned, both individuals must
meet the minimum age requirement of 62 or older. Sixty-two is the
threshold age for the mortality algorithm that drives the benefit
calculation. Second, the collateral residence must be their primary
home. There are other requirements, but these are the two main
But what do you do in the case of a 70-year-old wife who has
limited cash, no insurance, needs skilled home health care and has
a spouse who is 64? While they qualify together, his age will
reduce their benefits. The benefit calculation will always drive
off the younger party. That generally means less money will be
available to take care of the older senior who needs the health
A possible (but not only) solution is to take the younger party
off the deed and protect his possessory interests via a life
estate. This would cause the benefits to increase, but it would
also place the younger senior at risk when the older senior passes.
To protect him fully, a will should be considered whereby the
younger senior inherits the property and title passes back as a fee
simple, allowing him to then apply for his own reverse mortgage and
continue living in the home he loves.
This is where the lawyers come in. You need to know a good
attorney who can help you when you encounter this situation. Don't
try to go it alone.
This article is intended to be a discussion paper to help
mortgage brokers understand why a life estate can be both a
solution and problem at the same time. Ultimately, you need to be
able to advise your clients so that they can make an informed
decision and, if appropriate, take a well calculated risk. With
planning, it can work well. If you only do the first part, which is
creating the life estate and removing the younger senior from the
deed, you may be doing a disservice. Anything worth doing is worth
doing completely. Don't leave them hanging; send them to a lawyer
you trust who can validate your strategy.
Always treat your clients as if they were your parents. A life
estate under certain circumstances can help improve their financial
position dramatically. But don't forget the second half. Help them
build their exit strategy up front.
Make sure the possessor of the life estate is protected. Then,
when the time comes to revert the deed, he will remember your
services and appreciate your professionalism even more.
Nelson A. Locke, CRML is a past president of the Florida Association of Mortgage
Brokers (FAMB), a founding member of the National Reverse Mortgage
Lenders Association, the founder of the Association of Reverse
Mortgage Specialists Inc. and CEO of Value Financial Mortgage
Services Inc. He hosts the public television program "Ask Mr.
Mortgage," discusses reverse mortgages daily on AM radio and
designed the FAMB training course "Understanding Reverse
Mortgages." He may be reached at (800) 760-5363 or e-mail firstname.lastname@example.org.