Whether you are creating an estate plan or will inherit property upon the death of a life tenant, you should understand the rights and responsibilities of a remainderman. A remainder interest in property is the value or portion of the property inherited by an individual after the death of another heir. The remainder interest can be created by a will, a trust agreement, or a deed. In turn, a remainderman is a person who holds a remainder interest in property.
Life Estates and Remaindermen
A will or a trust can create various types of interests in property, depending upon how the property is distributed. A life estate is an interest in property that is created when a person making a will or trust gives another person the use of property only during the other person's lifetime. A life estate may also be created by a life estate deed.
When a life estate is created, it establishes two types of interest in property. The life tenant is the person who has the life estate, or entitlement to the use of property during their lifetime. The second party is the remainderman, or person with a remainder interest who is entitled to full ownership upon the death of the life tenant.
Most often, the life tenant is the spouse of the creator of the will or trust. However, the creator of a trust may reserve a life estate for himself or, in the case of a couple, for the survivor. Life estates are usually created to avoid probate or for tax benefits.
With a life estate, there can be a single remainderman or two of more joint remaindermen. In the event of the death of a remainderman before the life tenant dies, the remainderman's interest may pass to the deceased remainderman's estate or possibly to the surviving joint remaindermen, depending upon how the joint remainder interests were set up in the will, trust, or deed.
Rights of a Remainderman
Although a remainderman has certain rights that need to be protected, he does not have any responsibilities that are owed to the life tenant. The only responsibilities a remainderman has are really to himself—namely, protecting his rights in the property and preserving those rights for his heirs.
A remainderman has an interest in assuring that the life tenant does not destroy, damage, or otherwise diminish the value of the property. The life tenant must maintain the property, make any existing mortgage payments, pay property taxes, and keep the property adequately insured. Without the consent of the remainderman, the life tenant may not take out a new mortgage or otherwise encumber the property. Unless prohibited by the will, trust, or deed, the life tenant may rent out or make improvements on the property.
A remainderman may file a lawsuit against the life tenant if the latter takes any action that diminishes the value of the property or encumbers or attempts to sell the property.
Sale of the Property
A remainderman may sell his interest in the property, but the buyer would take the property subject to the rights of life tenant. In other words, the buyer would not have full title until the death of the life tenant, who would retain use of the property in the interim.
If the life tenant and the remainderman both agree and sign transfer documents, the property can be sold before the life tenant dies. In this situation, the remainderman has a right to a larger portion of the proceeds than the life tenant does, with the exact portion determined by the age and life expectancy of the life tenant. In other words, the older the life tenant, the larger share the remainderman receives.
Estate planning can be a complicated process, particularly when it comes to life estates. Working with an estate planning professional can help ensure that your will, trust, or deed is properly drawn up and executed.