Property ownership rights are often described as a bundle of sticks because such rights are divisible. You can retain some of sticks in your bundle of rights even though you give away all the other sticks of ownership.

The reserved life estate is an example. You retain the use of the property during the remainder of your lifetime while giving the property away. Let’s examine the life estate.

One may transfer his or her real property (while alive) and keep the right to use, live-in and rent the same property for the rest of one’s lifetime. The gift is completed (irrevocable) when made. And so, like any other lifetime gift, avoids probate at one’s death.

While alive, the life estate owner remains responsible for the property’s upkeep and paying the real property taxes. The grantee who takes subject to the reserved life estate, i.e., the “remainderman,” has a vested legal ownership right.

If the remainderman predeceases the life tenant then that vested ownership remains part of his or her estate, or part of a living trust estate if conveyed by the remainderman into a probate avoidance living trust, and passes to his or her heirs or beneficiaries.

No reassessment of real property taxes occurs during the life tenant’s life. If the remainderman is a surviving child or spouse then the applicable exclusion prevents subsequent reassessment for property taxes.

Nowadays, the life estate has lost much of its usefulness and appeal due to the advantages of the living trust. But, in certain situations the life estate can provide a better solution.

Most importantly, under current law, a person receiving Medi-Cal can transfer his or her home subject to a retained life estate. Doing so will avoid Medi-Cal estate recovery against the transferred home after death, under present law.

When the life estate terminates Medi-Cal cannot recover against the home because ownership was transferred during life; typically to the surviving children.

If one knows, as close to an absolute certainty as is humanly possible, that he or she will continue to live in his or her residence till death; that he or she will not change his or her mind about who should inherit the house; that he or she will not need to tap into an equity line of credit on the house, or a reverse mortgage, to supplement his or her income; and that transferring ownership outright to the intended beneficiaries will not have negative implications for them in the future; then transferring the home subject to a retained life estate may be desirable as a simpler and less costly solution than the living trust.

Unfortunately, such absolute certainty is seldom possible.

Typically, the living trust approach is far superior to the retained life estate because of its flexibility. The trust approach is much more flexible and forgiving because a living trust allows the following major options (not found in the retained life estate approach): selling the home if necessary or desirable (e.g., relocating); using the equity in the residence to live-on; and changing who inherits the house, and under what terms, as family circumstances evolve.

In sum, under existing law, the reserved life estate is sometimes relevant as an important Medi-Cal planning tool, but it is not typically a desirable estate planning tool, given the flexibility of the living trust.

The decision to use any estate planning approach requires careful examination of one’s own particular circumstances and objectives.

This should be done in consultation with a qualified estate planning attorney who can evaluate and advise as to different available options, and who can properly implement any chosen solution.

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235.

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