What is a deed with a Reserved Life Estate?
A deed is a document showing proof of ownership of real property. A deed with a reserved life estate is used when you wish to pass your real property to someone upon your death, but wish to live in and maintain control of the property until your death. A deed with reserved life estate allows you to live on the property with the responsibility to keep up and maintain the property. A benefit of this type of deed is that the “remainder” is passed immediately upon your death to whomever you appoint, and also avoiding the probate process. A disadvantage is that the property cannot be fully sold without the assent of the life and remainder estate holders. While a step up in basis for capital gains tax purposes will be realized upon the death of the life estate holder, the life tenant age 55 or older will loose the Section 121 capital gains tax exclusion if the real property is sold while the life tenant is living.
