Can Someone With a Life Estate Sell the Property in New York City Without Consent of Remainder Owners?

A person with a life estate cannot sell the property. They have the right to live on the property during their lifetime, that’s it. The do not own the property, just the right to live there. And they cannot sell the right to live there either, because that is not what the life estate is about. Not to mention, no one would buy a property with a person who only has a life estate.

A life estate is a right to use the property while the person is alive. They can live on the property or rent it out. But they cannot sell it. The life tenant’s interest  terminates at their death. Meaning, no one will be able to inherit the property from the life tenant. Instead, the other person on the deed, the one with the remainder interest, takes over the ownership of the property upon the death of the life tenant.

A person typically gets a life estate when their parent or spouse dies and wants them to have a place to live for life and the financial benefit to go to that parent’s children after the death of the person who received the life estate.

If you are a person who has a life estate, or if you have a remainder interest, this is something that is important to know. A life estate has its limits, and the limits are set forth in the law. In order to sell the property, the holder of the life estate and the holder of the remainder interest must sell it together. No one is going to buy the property from one of the stakeholders. Just like no one is going to buy a property from two owners if only one of them agrees to sell and signs the contract and deed. The seller would want both owners to sell or else there is no sale.

Can someone with a life estate sell the property? No, that is not something that they can do. If you are having issues with a life estate, you can call the Law Offices of Albert Goodwin at 212-233-1233 or 212-233-1233.

What a Life Estate Actually Is

A life estate is a form of property ownership that divides the rights in real property between two parties: the life tenant and the remainderman. The life tenant has the right to use the property — to live in it, to rent it out, to receive any rents or other income from it — for the duration of the life tenant's life. The remainderman has a future ownership interest that becomes possessory upon the life tenant's death. Until that moment, the remainderman has no right to occupy or use the property; until that moment, the life tenant has no right to sell the underlying ownership outright.

The structure has been used in English and American law for centuries. It is a tool to provide for one person's lifetime use of property while preserving the ultimate ownership for another. It comes up most often in family planning — a parent leaving a house to a child for life with the remainder to grandchildren, a spouse providing for a second spouse for life with the property ultimately going to children from a prior marriage, or a Medicaid planning structure where the senior reserves a life estate while transferring the remainder to children.

What the Life Tenant Can Do

Despite the limitations, the life tenant has substantial rights:

• Possession and use. The life tenant can live in the property as long as they wish during their lifetime.
• Renting. The life tenant can rent the property out and keep the rental income.
• Improvements. The life tenant can make improvements to the property at their own expense.
• Mortgaging the life estate. Technically, a lender could lend against the life estate alone, but in practice almost no lender will do this because the security interest dies with the life tenant.
• Transferring the life estate to someone else. The life tenant can sell or assign the life estate, but the buyer takes only what the life tenant had — the right to use the property for the original life tenant's remaining lifetime. This is rarely a useful transaction because no one wants to buy an interest that disappears at someone else's death.

What the Life Tenant Cannot Do

The life tenant cannot:

• Sell the property outright. Only the holder of both the life estate and the remainder can convey full title.
• Will the property to anyone. The life estate ends at death and the remainder beneficiary takes regardless of what the life tenant's will says.
• Mortgage the property in a way that affects the remainder interest.
• Commit waste — that is, do anything that materially diminishes the value of the property to the detriment of the remainderman. Waste claims can include allowing the property to deteriorate, failing to pay taxes, demolishing structures, removing fixtures, or stripping the property of valuable elements.

What the Remainderman Can Do

The remainderman holds a future interest. During the life tenant's lifetime, the remainderman can:

• Sell or assign their remainder interest, though again the buyer gets only what the remainderman has — a future interest that does not become possessory until the life tenant dies.
• Will the remainder interest to someone else.
• Bring an action against the life tenant for waste if the property is being damaged.
• Refuse to sign documents that would affect the property's ownership.

What the remainderman cannot do during the life tenant's lifetime is occupy the property, collect rents from it, or force a sale.

How a Sale Actually Happens

For the property to be sold while the life tenant is alive, both the life tenant and the remainderman (or all remaindermen, if there are several) must agree and sign the deed. The two parties effectively combine their interests to convey full ownership to a buyer. The proceeds are then divided between them according to an agreed allocation.

The allocation is the negotiation. The life tenant has a longer-lived interest than the remainderman if the life tenant is young; a shorter interest if the life tenant is elderly. Various actuarial tables (IRS Treasury tables, for example) can produce a recommended split of the proceeds based on the life tenant's age and life expectancy. The parties often negotiate around that starting point.

Tax consequences also factor into the split. The life tenant has a holding period and a basis that may differ from the remainderman's. Capital gains tax on the sale is allocated based on the IRS's tables for valuing the two interests.

Life Estates in Medicaid Planning

One of the most common contexts where life estates appear is Medicaid planning. A homeowner transfers the remainder interest in the home to children while retaining a life estate. The transfer of the remainder is a partial transfer for Medicaid purposes, with a value determined by actuarial tables. After the five-year look-back, the transferred remainder is outside the Medicaid resource calculation, and the homeowner can apply for Medicaid while continuing to live in the home for life.

The advantage of this structure is that the home passes to the children at death without probate and (because of the retained life estate) with a step-up in basis. The disadvantage is the loss of flexibility — the homeowner cannot freely sell the property without the children's cooperation.

Life Estates and Property Taxes

The life tenant is generally responsible for property taxes, insurance, and ordinary maintenance during the life estate. The remainderman is generally responsible for paying off any mortgage that existed at the creation of the life estate (though the life tenant pays the interest as a current expense). These allocations can vary by the terms of the document creating the life estate and by the parties' agreement.

If the life tenant fails to pay property taxes and the property goes into tax arrears, the remainderman has a strong interest in stepping in. Tax foreclosure could wipe out both interests. The remainderman may pay the back taxes and seek reimbursement from the life tenant, or may bring a waste claim.

Disputes Between Life Tenant and Remainderman

Disputes between the two interest holders are common, particularly in family settings. Some recurring themes:

• The life tenant wants to sell because the property has become too expensive to maintain; the remainderman wants to keep it.
• The life tenant wants to maintain the property minimally; the remainderman wants more investment to preserve value.
• The life tenant wants to rent the property and live elsewhere; the remainderman objects to the wear and tear of tenants.
• One or more remaindermen die during the life tenant's lifetime, and questions arise about who inherits the remainder interest.
• The remainderman pre-deceases the life tenant, and the remainderman's heirs and the life tenant disagree about how to proceed.

These disputes can be settled by negotiation, by court action (such as a partition action between the two interest holders or a waste action), or by buyout — the life tenant buying out the remainder or vice versa.