3 minute read

Right of Occupancy vs Life Estate - What's the Difference

Life estate and right of occupancy are both forms of legal documentation that dictate how property is controlled. But where do they differ? T&W explains.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

When it comes to right of occupancy vs life estate, there are slight differences. In essence, a life estate is a type of right of occupancy agreement. A right to occupancy means that an individual living in a home has the right to remain there until they choose to leave. With a right of occupancy, this can occur after the death of a spouse, or through a written agreement between the landlord and tenant. 

A life estate, by contrast, is set up during estate planning, and allows an individual or couple to transfer the deed to their property to an heir. Once the life estate is written, it allows the property to transfer, but the occupants remain in the home for life.

What Is Life Estate?

A life estate, also known as a lifetime estate, allows a property owner to transfer ownership of the property while still remaining in the home. A life estate deed is filed, and the home is fully transferred to the heir when the original owner and occupant of the estate passes away.

Generally, the property in question is a home, but it can also be a piece of land. Once a death certificate is filed with probate court, the life estate deed guarantees that the property is automatically transferred to the heir. Life estates can be used for many purposes, many of them advantageous for both Grantor (the original estate owner) and the heir who will be set to receive the property. 

Benefits of a Life Estate

A life estate makes it easy to transfer your home, without having to move out of it. When you have an heir you know is going to inherit your home when you pass away, a life estate is a way to legally share ownership of the home. Your heir will be able to avoid the costly, time consuming, and stressful probate process to become the full legal owner of the home once you are gone.

When a life estate is in place, any debts that the deceased leaves behind are not covered by the sale of the home. In addition, the original owner may have been able to strategically reduce their estate value to be able to qualify for Medicaid by using a life estate deed. A property is no longer considered an asset for Medicaid purposes when it’s transferred in a life estate. 

Disadvantages of a Life Estate

There are several disadvantages of having a life estate set up, and it's important to consider your options. Once the home is transferred through a life estate deed, selling the home or refinancing the home requires universal agreement of all parties. 

The life estate can't be easily changed, and this can cause big problems if heirs don't agree on what should be done with the property. It’s important to really do your due diligence and understand this aspect of estate planning to help identify potential issues in the future.

What Is a Right of Occupancy?

The right of occupancy means that an individual has the right to live in the home until they choose to leave. A right of occupancy agreement protects the tenant, and is much like owning the property outright. While the tenant doesn't have to pay for a mortgage, they must pay any mortgage interest and property taxes.

Right of Occupancy vs Life Estate 

Now, we want to expand upon the differences between these two types of legal documentation.  

A right of occupancy is a legal agreement where an individual is no longer the owner, but has the right to live in a property throughout their lifetime. It’s a bit similar to a life estate, but the person who is granted a right of occupancy must be living in the home.

Once the person moves out or passes away, the right of occupancy is no longer valid and the individual inheriting the property can do what they want. The heir can choose to live in the property, sell it, or rent it out without having to worry about the right to occupancy deed.

In a life estate, the heir and the property owner share the property. The original owner has a right of occupancy, and can't be kicked out of the home. A parent can transfer the right of a home to their child, for example.

Update Your Estate Plan Today

If you do not have a current Estate Plan in place, it's time to get your affairs in order. Your Estate Plan can leave your home to an heir, while allowing you to remain in it  under a right of occupancy agreement or life estate deed.

When it comes to planning, you have options. You can protect your estate and your heirs, and if you do it right, you can even still get to live in your home throughout your lifetime. In so many ways, you can use these strategic estate planning tactics to prepare for your financial legacy and take care of your heirs for generations to come.  

Trust & Will’s estate planning services help you create or update your Estate Plan in the most strategic, optimal ways possible. Understanding how to use right of occupancy vs life estate might be your key in establishing a concrete plan that ensures any uncomfortable misunderstandings in the future can be avoided. Your comprehensive, thorough Estate Plan can express exactly what you want, so you’ll know that you’ve protected your family even after you’re gone. Take our free quiz to see where you should get started, or compare our different estate planning options today!

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