A life estate is an ownership estate in real property that exists only for the lifetime of its owner or the lifetime of a designated third party (sometimes called a life estate per autre vie). A life estate can also be identified as an “estate for years”. It is still measured by the physical life of the life estate owner. Life estates can only be measured by the life of a natural person.
A life tenant is the owner of a life estate. (Although the words “life tenant” are used to describe the owner of a life estate, a life estate is an ownership interest, not a lease.)
A reversion is that portion of a fee estate that continues in the grantor after the grantor has conveyed a life estate. For example, when A conveys a life estate to B, the portion of the fee estate remaining in A is a reversion. When B’s life estate ends, the right to ownership and possession will revert to A. In this example, A is both grantor and a reversioner.
A remainder is a fee estate created in a third party (other than the grantor) that does not become an ownership interest until the life estate is terminated. It is a future possessory interest that vests immediately upon its granting. For example, when A conveys a life estate to B, with the remainder to C, the fee estate conveyed to C is a remainder. When B’s life estate ends, the right to possession and ownership becomes vested in C. C is a remainderman.
A life estate can be created by deed, will, trust agreement, or by operation of law (for example, under the homestead, dower, and courtesy laws of some states, a surviving spouse may receive a life estate in the real property of the deceased spouse).
A life estate that extends beyond a current living generation may violate the Rule Against Perpetuities. Specific state law must be reviewed to determine the benefits, limitations, obligations, and duties pertaining to life estates, remainders, and reversions.
A life estate can be granted to a third party, or it can be retained by a grantor. For example, A can convey a life estate to B, or A can convey the property to B, reserving a life estate for A.
A life estate terminates upon the death of the person identified in the conveyancing document as the measuring life. For example, if A conveys to B for the life of B, the life estate is terminated when B dies. Likewise, if A conveys to B for the life of C, the life estate is terminated when C dies. A life estate may also be terminated upon the occurrence of an event triggering termination under the document that created the life estate. A statutory life estate may be terminated as provided by the applicable state statute. When the life estate is terminated, title is vested in the owner of the reversion interest or the remainderman. A life tenant may sell, mortgage, lease, or otherwise dispose of her or his life estate interest, unless prohibited or restricted by the document creating the life estate. However, whatever interest the life tenant transfers is still subject to the life estate limitations. The life estate interest still terminates upon the death of the life tenant or other measuring life.
A reversioner and a remainderman may transfer and encumber her or his interest (reversion or remainder) in the same manner as a present interest, subject to the life estate. However, remember the reversion or remainder interest is future by nature and is subject to the life estate.