Ownership upon death strategy?

Question

So I searched the forums and elsewhere, but couldn't find anything on this.

A few years back, a trend started in France wherein people would check out elderly living in prime real estate. The idea is that you pay them an initial lump sum AND a monthly fee in return for the right to get the deed upon death of the owner. This has had some success with people who had been living in prime locations like Paris for 50 years.

The gamble of course is that this 75 y/o still gets to his or her centennial. Also, it's a monthly negative cash flow. But if the return is something like a million dollar property, it has paid off.

I can't believe there isn't anything on this in English (found some stuff in French). Does anybody know more about this kind of strategy?

Jerry W. · Answer

The life estate is where a person sells the future rights to their property but keep the right to live in and control it for their entire life.  It is often done by folks who are afraid the cost of nursing care will take the only asset they have to pass on to their children.  There is I think a 5 year look back for medicare/medicaid eligibility on nursing care assistance.  It also protects the property from things like divorce of children, bankruptcy, creditors, etc.  While creditors can attach the future interest, they cannot take away the life estate part without the current owners also owing them money.  No one really wants to sue an elderly person for the right to live in a property because as soon as they die the right passes on.  It can also be used an estate planning tool since the divided property interest lowers its value.

Ellis San Jose · Answer

Look up life estates & remainder interest

Also Reverse mortgages

Brian P. · Answer

What you really need to know is the probable life expectancy of the person with the life estate. I once was called in to buy a remainder interest in a great property. The life estate holder was was 86 and looked like she had a year to live. So I thought I will give a price based on her living 5 more years but expected 2 at the most. 15 years later I attended her birthday party. She finally went into a hospice and rented out the property which was her right, and lived 2 and a half more years. I finally offered to buy the life estate when she entered the hospice but she said no that maybe she would get better and move back in.

Very nice woman, I liked her a lot and my father in law was a Met life agent and used to howl and laugh when he would ask how Mrs so and so was doing. I got together with a actuary from Met life and decided from now on if I bought a remainder interest I would assume the life estate was going to live to be 110.

Matt C. · Answer

Life Estates are a common estate planning tool.  We see them all the time in the oil & gas business.  People want to give their kids the mineral interest they own but want to keep getting the royalty payments until they die.  Or they give the kids all the land but keep the house and an acre around it in a life estate with the kids as remaindermen.  I would assume the laws are a little different in every state.  If you get into life estates, be sure to understand the rights of the person holding the life estate and the rights of the remaindermen.  There are limits on what each can do without the consent of the other.  Watch out for anything that might create a reversionary interest.  And if you are going to do it in Louisiana, get an attorney in Louisiana.  Everything is different in Louisiana.

David Beard · Answer

You have exactly described the reverse mortgage, or "home equity conversion mortage", which is a thriving industry in the U.S.  Allows a senior to remain in their home, receive monthly payments during their life to supplement SSI and other income, and home is sold at death.

Ellis San Jose · Answer

@Thierry Van Roy

You're welcome

Thierry Van Roy · Answer

Wow, kind of embarassing that I didn't find anything on this "life estate" thing. Thanks for the info!

And @Joe Delia , you're right, but I'm not scamming, I want transparent methods and win-win situations. Nothing outrageous, just beating the competition and the inheritance tax. The only thing perhaps slightly unethical is that I intend to be accompanied by a doctor who likes the idea. She can kind of estimate people's life expectancy. But it's her investment too, so yeah.

And @Roy N. , nice!

Roy N. · Answer

@Thierry Van Roy @Joe Delia

There is a 1acre lot near my residence which backs onto the largest park in the City.  In the centre of the front third of this lot is a small 1.5 story house (2-bedroom).  After watching this lot for years and thinking how you could put an upscale set of row housing on it ... which would be set back from the street and would back onto the park ... and convincing the City that such a project merits a zoning variation, we cold-called the owner.

He turned out to be 93 years old with no intention of moving again in his life.  We offered to purchase his property, and allow him to continue to live their rent-free for the remainder of his days.   He's just about 96 now ;)

Joe Delia · Answer

I have no doubt people can ethically do this, but, when it comes to seniors and how often they're taken advantage of, I just cringe at the thought of another shark circling them.

If anyone's been close with their grandparents and seen them struggle through battling insurance companies, random thief's calling them asking for cash on and on, door to door theives saying they have mandated work needed on the house and need half up front, you'll know exactly what I'm talking about.

Ownership upon death strategy?

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