Can a Life Tenant Sell the Property in New York?

By the Law Offices of Albert Goodwin, New York estate and real property attorneys

Yes, but what a life tenant can sell depends on whose consent they have. In New York there are three ways a life tenant can sell property held under a life estate:

1. Sell only the life interest: The life tenant can sell or give away their own life estate without asking the remaindermen. The buyer gets the right to use the property only for as long as the original life tenant lives. This is called an estate pur autre vie, an estate measured by another person's life.
2. Sell the whole property with the remaindermen: If every remainderman agrees and signs the deed, the life tenant and remaindermen can sell full ownership (the fee) to a buyer and divide the proceeds.
3. Ask a court to order a sale: If a remainderman refuses, cannot be found, or cannot legally consent, the life tenant can petition under Article 16 of the Real Property Actions and Proceedings Law (RPAPL). The court will order a sale only if it finds the sale expedient.

A life tenant cannot sell full ownership alone. A deed signed only by the life tenant transfers no more than the life estate, whatever the deed says.

This page covers the sale question only. For how a life estate is created by deed, will, or trust, see our pages on New York estate planning techniques and avoiding probate in New York.

A Short Refresher on the Parties

The life tenant has the right to live in or use the property for life. The remaindermen own the property outright when the life tenant dies. In New York the most common setup is a parent who deeds the house to children and keeps a life estate, often for probate or Medicaid planning. A life estate can also come from a will or trust, for example a house left to a surviving spouse for life and then to children from an earlier marriage. The setup matters because it affects who must sign, which court hears a dispute, and how the sale is taxed.

Path 1: Selling or Transferring the Life Estate Alone

The life tenant owns a real interest in real property and can convey it without the remaindermen's consent. In practice this option is limited:

• Few outside buyers will pay much for the right to occupy a house that ends at an unknown date.
• The most common buyers of a life estate are the remaindermen themselves. When they buy it, they own the property outright and can sell or keep it.
• The buyer takes the property subject to the same duties as the life tenant: paying real estate taxes, ordinary repairs, and insurance, and not committing waste.
• If the life tenant gives the life estate away or sells it for less than fair value, that can be a transfer for Medicaid purposes (see below).

A life tenant can also give up the life estate to the remaindermen by signing a release or deed. That ends the life tenant's rights immediately, so it needs careful thought about housing, Medicaid, and taxes before signing.

Path 2: A Joint Sale With All Remaindermen

This is the fastest and least expensive route. The life tenant and every remainderman sign the contract of sale and the deed, and the title company insures a clean transfer to the buyer. Points to settle in writing before going to contract:

• The split: The parties can agree to any division. Many use an actuarial value for the life estate (explained below) so the split can be defended later, especially if Medicaid may be involved.
• Costs: Who pays the broker, the New York State real estate transfer tax, any New York City real property transfer tax, and the mansion tax on residential sales of $1 million or more.
• Remaindermen who have died: A remainder interest usually passes through the remainderman's estate. The executor or administrator must sign, which means someone may first need letters from the Surrogate's Court. See our guide to letters of administration.
• Remaindermen who are minors or incapacitated: They cannot sign a deed. A guardian or a court order is needed, which usually moves the sale into Path 3.

Path 3: A Court-Ordered Sale Under RPAPL Article 16

RPAPL Article 16 addresses real property that is subject to a future estate, such as a remainder after a life estate. Under RPAPL § 1602, a person with an interest in the property can apply to the court for an order directing a sale. The court must be satisfied that the sale is expedient. Courts have read "expedient" to mean suitable and advantageous under the circumstances.

In Matter of Sauer, 194 Misc. 2d 634 (Sur. Ct., Nassau County 2002), citing Matter of Gaffers, 254 App. Div. 448, the court approved a sale where the offered price was well above the appraised value, the rent did not cover the taxes, the house was empty, and the life tenant faced large ongoing costs for taxes, insurance, and upkeep. Facts like these help a petition. A life tenant who simply prefers cash, while the remaindermen show the property is being kept up and is not losing value, faces a harder case.

Article 16 Sale vs. Partition

People often confuse these two proceedings:

• Article 16 sale: Used when the dispute is between a present interest (the life tenant) and a future interest (the remaindermen). The question is whether a sale is expedient.
• Partition under RPAPL Article 9: Used between co-owners who hold the same kind of interest at the same time, such as siblings who inherited a house as tenants in common. A life tenant generally cannot use partition to force a sale against the remaindermen, because they are not co-owners of the same estate. Partition can arise in life estate situations, for example between two remaindermen after the life tenant dies, or between two people who share a life estate. See our page on partition of real property in New York.

Article 9 also contains rules on how a life tenant is paid when property subject to a life estate is sold in partition, including RPAPL § 967. Courts deciding Article 16 sales often look to the same actuarial approach when dividing proceeds.

Which Court Hears the Petition

An Article 16 proceeding is ordinarily brought in the Supreme Court in the county where the property is located. When the life estate was created by a will or trust that is already before the Surrogate's Court, that court can often decide the sale as part of the estate or trust proceeding, as happened in Sauer. Choosing the right court at the start avoids delay.

What the Process Looks Like

1. Title and deed review: Confirm who holds the remainder, whether the deed reserved any powers to the life tenant, and whether any remainderman has died.
2. Appraisal and offer: An appraisal and, ideally, a signed contract or written offer that is subject to court approval.
3. Petition: A verified petition showing why the sale is expedient, with the appraisal, carrying costs, and the proposed split.
4. Service on all interested parties: Every remainderman must be served. If someone cannot be located, the court can allow alternative service, such as publication.
5. Guardian ad litem: If a remainderman is a minor, incapacitated, or unknown (for example, "the children of" a person who is still living), the court will appoint a guardian ad litem to protect that person's interest.
6. Hearing and order: The court decides whether the sale is expedient and sets terms. It can approve the price, require a different sale method, direct how proceeds are divided, or order that a share be held, invested, or secured instead of paid out right away. This is common when a remainderman is a minor.
7. Closing: The deed is signed under the court's authority and proceeds are distributed as the order directs.

An uncontested petition can move in a few months. A contested petition, or one that needs a guardian ad litem, often takes longer. Timing depends on the county and the court's calendar.

How Sale Proceeds Are Divided

When the whole property is sold, the life tenant receives the present value of the right to use the property for the rest of their life. The remaindermen receive the rest. The calculation uses three inputs:

• The life tenant's age on the date of sale. This is the date that counts, not the date the life estate was created. A life tenant who was 60 when the deed was signed and is 78 at closing is valued as a 78-year-old.
• An actuarial table. The New York First Department has approved valuing a life estate using the life estate and remainder table issued by the federal Health Care Financing Administration (HCFA), the table long used in Medicaid practice. Many practitioners and courts now also use the IRS actuarial tables under Internal Revenue Code § 7520, which pair mortality data with a published monthly interest rate. The court decides which method applies in a contested case, and the two methods can give different results.
• The interest rate, if the IRS method is used. The § 7520 rate changes monthly. A higher rate makes the life estate worth more and the remainder worth less.

Worked Example (Illustrative Only)

A 78-year-old life tenant and two adult remaindermen sell a Queens house for $800,000.

• Assume broker commission, transfer taxes, and other closing costs total $60,000. Net proceeds: $740,000.
• Assume that, using the IRS tables and the § 7520 rate in effect for the month of sale, the life estate factor for a 78-year-old comes to about 0.35. The remainder factor is then about 0.65.
• Life tenant's share: $740,000 × 0.35 = $259,000.
• Remaindermen's share: $740,000 × 0.65 = $481,000, or $240,500 each.

These factors are assumptions for illustration. The actual factor depends on the exact age, the table used, and the rate for the month of closing. You need the current table and rate to calculate your own split.

Unless the parties agree otherwise or the court orders differently, the life tenant generally bears a share of closing costs, transfer taxes, and broker commissions. The life tenant also remains responsible for real estate taxes that came due during the life estate.

Medicaid Consequences

Selling a life estate property can undo careful Medicaid planning. Before signing anything, consider these points:

• The five-year look-back: New York reviews transfers made in the 60 months before an application for nursing home Medicaid. If the parent deeded the remainder to the children within that window, the original deed may already be a transfer.
• The life tenant's share is a countable asset: While the life tenant holds the life estate in a home, it is generally not counted. Once it is sold, the life tenant's cash share counts toward the resource limit and can delay eligibility until it is spent down.
• Underpaying the life tenant is a transfer: If the life tenant accepts less than the actuarial value of the life estate, or hands their share to the children, Medicaid may treat the difference as a gift and impose a penalty period. Using a recognized table protects against this.
• Estate recovery: A life estate normally ends at death and leaves nothing for the estate to recover. Cash from a sale that remains at death can become part of the probate estate and be subject to a Medicaid recovery claim.

If the life tenant is already in a nursing home or expects to apply soon, plan the sale and the use of the proceeds together.

Tax Consequences

• Loss of the step-up in basis: When a parent keeps a life estate and the property passes to the children at the parent's death, the children generally receive a basis equal to the value at death under IRC §§ 2036 and 1014. Much of the appreciation then escapes capital gains tax. A sale during the parent's life gives that up. The remaindermen generally take the parent's original basis for their share, which can mean a large taxable gain.
• Home sale exclusion on the life tenant's share: A life tenant who owned and lived in the home for at least two of the five years before the sale may be able to exclude up to $250,000 of gain on their share ($500,000 for a qualifying married couple) under IRC § 121. Remaindermen who did not live there generally cannot use this exclusion.
• Transfer taxes: The New York State real estate transfer tax applies to the sale, with an additional mansion tax on residential sales of $1 million or more. Sales in New York City also trigger the city's real property transfer tax.
• Property tax exemptions: A life tenant can often claim the STAR credit or exemption and the senior citizen exemption on the home. Those benefits end with the sale. If the remaindermen keep the property instead, they may not qualify.

Because the tax cost of a lifetime sale can exceed the benefit, a CPA should run the numbers before the contract is signed.

Check the Deed First: Reserved Powers

Some New York life estate deeds reserve rights to the life tenant, such as a limited power of appointment that lets the life tenant change which family members receive the remainder. Some deeds reserve a power to sell. Read the deed before assuming the remaindermen must sign. The "enhanced life estate" or "Lady Bird" deed used in some states, which lets the life tenant sell without anyone's consent, is not a standard New York form. A New York deed that reserves broad powers can also change the Medicaid and tax results.

Alternatives to a Sale

• Remaindermen buy out the life estate: They pay the life tenant the actuarial value and take full ownership.
• Life tenant buys out the remainder: Possible, but it can recreate the Medicaid exposure the deed was meant to avoid.
• Renting the property: The life tenant can lease the property and keep the rent, which can cover costs if the life tenant has moved out. See our page on buyouts of inherited residences for how buyout negotiations usually work.

Frequently Asked Questions

Can the remainderman force a sale?

A remainderman cannot force the life tenant out. A remainderman can petition under RPAPL Article 16, but the court must find the sale expedient. Courts are reluctant to order a sale of a home the life tenant is living in and maintaining.

Can a life tenant rent or mortgage the property?

A life tenant can rent the property and keep the rent, but the lease ends when the life tenant dies. A life tenant can mortgage only the life estate, and most lenders will not lend on it. Mortgaging the full property requires the remaindermen to sign.

Can a life tenant be evicted?

Generally no. The remaindermen have no right to possession while the life tenant is alive. If the life tenant lets the property deteriorate or stops paying taxes, the remaindermen may bring an action for waste. Remedies in a waste action can include damages and, in some cases, loss of the life estate.

What if a remainderman dies before the life tenant?

In most deeds the remainder is vested, so it passes through the remainderman's estate under their will or by intestacy. The estate's fiduciary then signs in their place. If the deed made the remainder depend on surviving the life tenant, the interest may pass to someone else named in the deed.

What if a remainderman cannot be found?

A joint sale is not possible without that person's signature. An Article 16 petition can proceed with court-approved service, and the court can appoint a guardian ad litem and hold the missing person's share.

Who pays the real estate taxes before the sale?

The life tenant. The life tenant pays taxes, ordinary repairs, and interest on any existing mortgage. Disputes over unpaid carrying costs are often settled from the sale proceeds.

Talk to a New York Life Estate Attorney

We represent life tenants and remaindermen in negotiated sales, buyouts, and Article 16 petitions in the Supreme and Surrogate's Courts. We can review the deed, estimate the split, and coordinate with your accountant on the tax and Medicaid questions before you commit to a sale. Related reading: a beneficiary living in an inherited house, a house in two names, and a sample NYC probate timeline.

The Law Offices of Albert Goodwin has offices in New York City, Brooklyn, and Queens. Call 212-233-1233 or email [email protected].

This page provides general information about New York law and is not legal advice for any specific situation. Tax rates, actuarial tables, and Medicaid rules change. Confirm current figures before relying on them.