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My parents wish to cancel their life estate clause on their home. Is it possible to do so? They live in RI. Thank you

Cheshire, CT |

They want to cancel the life estate clause. Also, if this is possible, how long does it take to take effect?

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Attorney answers 2

Posted

I'm assuming that they reserved a life use to themselves in a deed to their children. At least in my state {CT), they can release their life estate in a deed. Doing that might cause the property to not be included in their taxable estate(s). If they have significant assets and the estate tax comes back, as i believe is someday will, they could possibly lose the advantage of increased tax basis at death. On the other hand, by living in the house until they die, the house would also be included in their estates under Code Sec. 2036 and there would be a basis increase.

They should speak with a Rhode Island lawyer.

This is not a legal opinion. Just trying to help out.

Jeffrey Crown

Posted

The title, or ownership, to real estate consists of two “bundles of rights.” The first bundle is the ownership of the land and any attached structures. The second bundle is the right to occupy the land and its attached structures. Thus, when a parent transfers a property to a child, the parent transfers one bundle (the land) and retains the other bundle (the right to occupy or “use” the property) for the life of the parent. The parent can always transfer this right to occupy the land, the second bundle of rights, to the child by signing a deed transferring that bundle. The transfer happens the moment the child accepts the signed and notarized deed.
However, there are a couple of considerations. First, was the property transferred to minimize or negate a potential Medicaid penalty in case a parent needs to enter a nursing home? Second, there are tax consequences involved in the timing of the transfer. Both these questions should be answered by an attorney who understands the purpose of the initial transfer.

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