Life Estates And Property Taxes

Training for: Legal Notes

Question: What is a life estate and how should property taxes be assessed on such property?

Answer: A life estate is a type of ownership interest in land. The holder of a life estate has most of the same possessory and ownership rights as a person with “fee simple” ownership, such as the right to control, enjoy and improve the property, or to sell or lease his/her life estate interest. However, the duration of a life estate is measured by and limited to the life or lives of a specific person(s), which may be the life of the person who created the life estate (the grantor), the life of the person for whose benefit it was created (the grantee), or the life or lives of some other person(s). The life estate automatically terminates when the person whose life was used to measure its duration dies.

In Maine, a deed or will is necessary to create a life estate. Although nothing in state law requires that specific words be used in the conveyance, the language must show an intent to create a life estate rather than merely a right to occupy the property.

Under long-established Maine common-law rules, the individual who holds property under the terms of a life estate is the owner of the property for the purposes of property taxation. Consequently, such real estate should be assessed in the name of the “life tenant” as owner.

After the life estate ends, the real estate should be assessed to the “remainderman” (the person the deed or will creating the life estate designates to assume ownership).

Because the “life tenant” is the legal owner of the property during the life estate, he/she qualifies for the Maine Resident Homestead Property Tax Exemption (36 M.R.S. §§ 681 – 689) assuming all other eligibility criteria for the exemption are met.

Some deeds and lease agreements create “life leases” or life occupancies that provide nothing more than a right to occupy property for life. Persons holding such interests do not hold a life estate and are not the legal owners of the property for property tax purposes; nor would they currently be eligible for the Homestead Exemption.

For more on property tax assessment see MMA Legal Services’ Assessment Manual available on our website (www.memun.org) (By S.F.P.)

Question: What is a life estate and how should property taxes be assessed on such property?

Answer: A life estate is a type of ownership interest in land. The holder of a life estate has most of the same possessory and ownership rights as a person with “fee simple” ownership, such as the right to control, enjoy and improve the property, or to sell or lease his/her life estate interest. However, the duration of a life estate is measured by and limited to the life or lives of a specific person(s), which may be the life of the person who created the life estate (the grantor), the life of the person for whose benefit it was created (the grantee), or the life or lives of some other person(s). The life estate automatically terminates when the person whose life was used to measure its duration dies.

In Maine, a deed or will is necessary to create a life estate. Although nothing in state law requires that specific words be used in the conveyance, the language must show an intent to create a life estate rather than merely a right to occupy the property.

Under long-established Maine common-law rules, the individual who holds property under the terms of a life estate is the owner of the property for the purposes of property taxation. Consequently, such real estate should be assessed in the name of the “life tenant” as owner.

After the life estate ends, the real estate should be assessed to the “remainderman” (the person the deed or will creating the life estate designates to assume ownership).

Because the “life tenant” is the legal owner of the property during the life estate, he/she qualifies for the Maine Resident Homestead Property Tax Exemption (36 M.R.S. §§ 681 – 689) assuming all other eligibility criteria for the exemption are met.

Some deeds and lease agreements create “life leases” or life occupancies that provide nothing more than a right to occupy property for life. Persons holding such interests do not hold a life estate and are not the legal owners of the property for property tax purposes; nor would they currently be eligible for the Homestead Exemption.

For more on property tax assessment see MMA Legal Services’ Assessment Manual available on our website (www.memun.org) (By S.F.P.)