Mortgaging a Life Estate

A life estate is best explained with an example. Let's say a surviving spouse wishes to leave the house to her children. However, she may wish to qualify for Medicaid, for health reasons. She can transfer interest in her property and still qualify for Medicaid. She lives in the property until her death. At that time, the property goes to the children. There is no probate situation in the process.

Obtaining a Mortgage

It is not as simple as applying for a mortgage. In fact, once the woman executes her legal options, she cannot borrow on the property, by herself. The children must be involved in the loan. This is to safeguard the position of the mortgage company. If the woman is the only person on the loan, the mortgage company will have no recourse, when she dies. However, once the children have an interest in the property, they can mortgage their interest, before she dies. Yet, they must obtain her permission. They will be responsible for the payments, and it will be similar to a normal home loan situation.

Things Can Get Complicated

Complications can sometimes set in. In some cases, the woman may also apply for a reverse mortgage. This will give her a regular monthly income. She will not have to pay back the loan until the terms are up. If she dies, then the children will have to satisfy the loan. If not, the house may be sold and the remainder will be divided among the children. If the woman has to go to nursing care or move from the house, she will have to repay the loan. In the event of her death, the children are responsible. If they do not pay, the loan is in default and the property will be sold.

Seeking Legal Advice

It is best to get legal advice on these matters. There are many different scenarios that may occur. The right attorney can answer all of the questions that you have. Lawyers have years of training in important legal matters. In legal issues, one simple word or punctuation in the wrong place, can spell disaster. There are some things that you can do to help your heirs with taxes, also. Not everyone may be aware of these things. It is best to have an attorney handle the process. Your attorney can set up the best method for everyone involved in a life estate.