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The Heritage Law Center, LLC Blog

The Pros and Cons of a Life Estate Deed

POSTED ON: October 5, 2020

A life estate deed in Massachusetts is a deed in which two or more people each have ownership of real property, but they have it for different periods of time. An example: Mary is 82 years old and lives in her home by herself. Mary signs the deed to her home over to her adult daughter for $1, while she keeps a life estate for herself. In this scenario:

  • Mary is the “life tenant” and she retains the exclusive right to enjoy and live in the residence until she passes away. She continues to pay the expenses of the property, such as taxes, insurance, and maintenance costs.
  • Her daughter becomes the “remainderman,” who has current ownership interest in the home, but can’t take possession of it until after Mary’s death. The daughter can’t transfer or sell the property without Mary’s signature.

Why did Mary do a life estate deed?
Mary decided to use a life estate deed as part of her strategy for MassHealth planning. MassHealth is designed to pay for long-term care once a person’s funds and assets are extremely limited. Mary wanted to protect at least a portion of assets and still be able to qualify for MassHealth in the future.

When the life estate deed was created, the transfer was considered a gift to Mary’s daughter. This started the five-year-look-back period for MassHealth eligibility. When someone applies for MassHealth, if MassHealth discovers a transfer of assets during the past five years, whether to a trust or to another person, they will impose a disqualification period on the applicant’s eligibility (a length of time the applicant won’t be eligible for MassHealth). If Mary does need nursing home care within that five-year period, she would have to pay privately for nursing home care until the disqualification period was over.

Pros of a life estate deed

  • Mary gets to own her home for her lifetime and live there. Her daughter can’t move in or kick Mary out. Even if creditors have a claim against Mary’s daughter, the property can’t be sold without Mary’s consent.
  • Upon Mary’s death, this allows the property to pass to Mary’s daughter without interference from the probate court. Transferring the home to the daughter quickly and saving her the cost of fees incurred during probate.
  • Mary can retain any tax savings that were available to her prior to the transfer like veterans’ or senior citizens’ exemptions.
  • For MassHealth purposes, by retaining a life estate any disqualification period would be much less than if Mary had transferred the property outright to her daughter, since the penalty is based on the value of the transfer and not the entire value of the property. After the five-year transfer period, the property should be protected from MassHealth. If a lien is ever placed on the property by MassHealth, it can only be up to the value of the life estate.
  • For estate tax purposes, Mary’s property is an asset of her estate, so the daughter will receive a “step-up in basis” when she receives the real estate. This means that the inherited property will be valued for tax purposes at the date of Mary’s death, so the daughter should be able to avoid capital gains taxes when she sells the property.

Cons of a life estate deed

  • Mary can’t simply remove or change a name once it is on a deed to real estate.
  • Mary would need the consent of her daughter to sell, mortgage, or refinance the property.
  • If Mary sells the house, the sales proceeds would have to be split with her daughter and there would be capital gains consequences for the daughter since the home wasn’t the daughter’s principal residence.
  • Legal claims against the daughter can affect the home. If the daughter is sued, owes taxes, gets divorced, or if she files bankruptcy, her interest in the home isn’t protected. If the daughter dies before Mary, the child’s estate would go through probate, including her interest in the home, unless at least one other remainderman was listed as a joint tenant. However, while these claims may be made against the property, no one can make Mary move out of the home during her life.

There are many things to consider when deciding whether to use a life estate deed in Massachusetts as part of your estate plan. Call us today at (617) 299-6976 or send an email to to schedule a confidential, no-cost consultation to discuss what estate planning strategies are right for you.