Life Estates in N.C.

Life Estate questions are popping up everywhere these days.  Recently we had a real estate agent call us with a question about how they should list a seller on an offer to purchase and contract because the agent did her due diligence and checked the tax record before completing her buyer’s offer to purchase. 

The tax record listed the owner and then the words life estate. The agent remembered learning about life estates in Real Estate school but she wanted to be sure.  On another file, our title search revealed that a gentleman was left a life estate in a tract of land when a friend of his passed away.  He signed a deed purportedly giving the property to another person who was now trying to sell it.  We had to break the news to the person trying to sell the property that they did not own the property because the gentleman that conveyed it to them only held a life estate, and he had since passed away.  I thought it would be a good time to review what a life estate is, and what they mean to you as a prospective buyer in North Carolina.  

A life estate is the interest in property that is measured by the life of a person.  It can be granted to someone for his or her lifetime or for the lifetime of another.  The life estate interest gives the holder the right to all the benefits of the property during the lifetime for which it is granted.  Upon the death of the measuring life, the property automatically vests in a remainderman or the future interest holder.  

Therefore, referencing the first scenario above, when the tax office has the words life estate on the current record for a piece of property, it likely means that Jane Doe only has interest in the property so long as she lives.  When Jane Doe dies, the property will automatically vest in someone else; the future interest holder sometimes referred to as a remainderman.  This is something to be concerned with if you buy a property that Jane Doe held a life estate in if the remainderman did not also join in the conveyance because if the remainderman did not sign the deed to convey title of the property to you, then you only bought the right to all the benefits of the property while Jane Doe is alive.For example, if Jane Doe deeds you the interest she has in the property on January 12, you move on January 13 and Jane Doe passes away on January 14; the remainderman automatically becomes the owner of the property on January 14 and owes you nothing.  

Regarding the second scenario mentioned above, wherein the seller was trying to sell the property that he no longer had an interest in, the gentleman had every right to convey his interest in the property even though it was only a life estate.  When he passed his interest in title to the seller, the sellerheld what would be called a life estate pur autre vie (literally translates asfor another life).  That means an interest in property for the life of another.  In this case, the another would be the gentleman.  However, when the gentleman died, the property passed immediately to whoever was named as the future interest holders when the gentleman took title to the life estate.  

Therefore, when buying property, make sure you ask your attorney, Am I buying a fee simple interest in the property? Fee simple interest - not a life estate - is what you want to purchase.  A fee simple interest means you are getting the property for a virtually infinite duration and have the right to convey or devise the same to anyone without restrictions.  Therefore, you can sell it or leave it to your heirs.

Published by Wendy Hughes on December 1, 2016