A life tenant who has signed a power of attorney may be able to change his life estate through his agent, but only if the power of attorney explicitly gives the agent that authority and the remainderman or remaindermen consent to the change. A general power to handle the principal’s real estate is not enough. Because the answer turns on the exact language of the document, a careful reading of the power of attorney is the first step in every one of these cases.
Power of Attorney and Life Estate: A Brief Overview
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Power of attorney
A power of attorney (POA) is a document in which one person, the principal, authorizes another, the agent or attorney-in-fact, to make decisions and take actions on the principal’s behalf. The agent need not be a lawyer; it is usually a family member, friend or professional adviser. A POA can be general, granting broad authority to manage finances, sign contracts and buy or sell property, or specific, limited to a single matter such as the sale of one parcel or the management of one account. The principal can also attach conditions, for example requiring the agent to consult a financial adviser before large investment decisions, or prohibiting the agent from changing the principal’s will or beneficiary designations. Whatever the form, the agent can only do what the document authorizes. See our page on what a power of attorney allows an agent to do.
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Life estate
A life estate is an arrangement under which one person, the life tenant, has the right to use, possess and enjoy a property for the rest of his or her life, after which the property passes automatically, without probate, to one or more remaindermen who hold a future interest in it. The life tenant has the exclusive right to occupy the property and to collect any income from it, such as rent, and is responsible for maintaining it and paying the property taxes.
The life tenant cannot sell, transfer or mortgage the property without the consent of the remaindermen, whose interest is vested and takes effect at the life tenant’s death. The remaindermen, for their part, have no right to use the property during the life tenant’s lifetime, but they can take legal action if the life tenant fails to maintain it or does something that diminishes its value. We discuss the arrangement further on our pages on life estate deeds and remainderman rights.
Can Power of Attorney Change a Life Estate?
Two principles decide the question. First, once a life estate is created, both the life tenant and the remaindermen hold vested rights in the property that are protected by law, and the life estate cannot be changed without the unanimous consent of everyone who holds an interest. Second, an agent under a power of attorney can only do what the principal explicitly authorized. Put together, the agent of a life tenant or of a remainderman can consent to a change in the life estate only if the POA specifically grants that power and all of the other interest holders agree.
The specific-authority requirement is where most attempts fail. If a POA gives the agent power to manage the principal’s finances and real estate but says nothing about modifying a life estate, an agent who tries to change the life estate is acting outside the scope of the document. Language that has been treated as sufficient looks like an express authorization to “sell, lease, or otherwise dispose of any real property, including property subject to a life estate.” If a life tenant in New York has a POA with that kind of clause, and the remaindermen consent to ending the life estate and selling the property, the agent can lawfully carry out the transaction.
The consent requirement is the other half. Suppose a parent deeds the family home to the children while reserving a life estate, keeping the right to live there for life. The parent cannot later revoke the life estate and sell the home without the children’s consent, and neither can the parent’s agent, even under a POA that expressly authorizes the agent to deal with the life estate. The same is true if a life tenant wants to sell and move somewhere smaller: the agent must obtain the remaindermen’s agreement before proceeding, because the sale affects their future interest. Where the parties disagree, or where a proposed change could harm the interests of the life tenant or the remaindermen, court involvement may be needed. Our page on whether a life tenant can sell the property covers the sale question in more detail.
The situation in which the question most often arises is incapacity. An elderly life tenant develops dementia and can no longer make decisions about the house. If she signed a properly executed POA that specifically authorizes the agent to make decisions about the life estate, the agent may be able to act for her, for example by consenting to a modification or termination of the arrangement. If the agent concludes that selling the property and using the proceeds to pay for long-term care is in her best interest, the agent needs both the specific authority in the POA and the consent of the remaindermen to go ahead with the sale. Without the specific authority, the agent cannot act; without the remaindermen, the agent cannot complete the transaction.
Even where both requirements are met, modifying or ending a life estate can have significant tax and benefits consequences, including capital gains tax, gift tax and eligibility for Medicaid and other government programs, and those should be evaluated before anything is signed. If you are planning ahead, the cleanest solution is to have the POA drafted to address the life estate expressly; see our page on drafting a New York power of attorney.
If you are an agent trying to work out what your power of attorney lets you do with a life estate, or a remainderman being asked to consent to a change, we can review the documents and tell you where you stand. Call us at 212-233-1233 or write to [email protected]. We represent clients throughout New York State, including all five boroughs of New York City, Long Island and Westchester.
