Granting the other owner a life estate (so they can live in or use the property for the rest of their life, while someone else holds the remainder interest) is legally possible in Colorado, but it carries multiple risks you should understand before choosing this route instead of selling. Key risks include loss of control, disputes over maintenance and improvements, title and financing complications, tax consequences, creditor exposure, and possible problems with government benefits (such as Medicaid). Consult a Colorado attorney and a tax advisor before executing a life estate deed.

What a life estate is (basic mechanics)

A life estate separates property ownership into two parts: the life estate and the remainder interest. The life tenant gets the right to possess and use the property for the duration of his or her life. When the life tenant dies, the remainder interest holder(s) receive full ownership (the estate becomes possessory). Creation normally requires a written deed that clearly grants a life estate to one person and names the remainderman(s).

How interests and duties usually work in Colorado

• Possession: The life tenant has exclusive possession during their lifetime unless the deed says otherwise.
• Maintenance and property taxes: The life tenant usually must pay routine maintenance, utilities, and property taxes, but major repairs or improvements can raise disputes between life tenant and remainderman.
• Improvements and waste: The life tenant must not commit waste (destruction or material impairment) that reduces the value of the remainder interest. What counts as “waste” can be disputed and lead to litigation.
• Conveyance and encumbrance: A life tenant can normally convey or mortgage only their lifetime interest. A purchaser or mortgagee receives only the life estate, not the remainder. Remaindermen generally must consent to any sale that conveys full title, or a court may order a partition sale in some circumstances.

Main risks of granting a life estate instead of selling

1. Reduced marketability and financing complications

Most buyers and lenders dislike life-estate arrangements because the title is split. Mortgage lenders will not make a standard loan on property with a life tenant and a separate remainderman unless the life tenant or remainderman satisfies lender requirements. That can make a future sale harder and lower the pool of buyers.

2. Loss of control and potential for disputes

Once you grant the life estate, you give up the life tenant’s possessory control. The remainderman cannot occupy or use the property until the life tenant dies (or otherwise loses the life estate). Disputes commonly arise over who is responsible for upkeep, how to handle major repairs, or whether changes/improvements are permitted.

3. Financial and tax consequences

Tax consequences can be complex. Transfer of a life estate is a transfer of an interest in real property with potential gift-tax and capital-gains implications. The life tenant’s and remainderman’s income-tax bases and future capital-gains calculation may be affected. Consult a tax professional for Colorado- and federal-level tax guidance.

4. Creditors and claims

Creditors can often reach a life tenant’s interest in the property and, in some cases, the remainder interest (depending on the timing and nature of debts). A life-estate deed might not shelter the property from judgment creditors or liens against either party.

5. Impact on public benefits

Grants of property interests can affect eligibility for Medicaid and other means-tested public benefits. State Medicaid rules include asset lookback and recovery provisions that can penalize certain transfers made before needing benefits. Talk to an elder law attorney or Medicaid planner before making transfers if benefits are a possibility.

6. Difficulty terminating or buying out the life estate

If relationships change, ending a life estate usually requires agreement by both parties or a court action (for example, partition or buyout). Courts may order sale and division of proceeds, but litigation is costly and uncertain.

7. Insurance, liability, and upkeep ambiguity

Who pays property insurance premiums, insures against liability from injuries on the property, or fixes a leaking roof are common flashpoints. If the life tenant fails to keep adequate insurance, the remainderman may suffer loss.

8. Potential unintended permanence

Because life estates persist until the life tenant dies, they can lock in an arrangement for many years. If circumstances (market, family, or financial) change, reversing the arrangement can be difficult.

Colorado-specific legal context and references

Colorado follows standard property-law principles for life estates and remainder interests. Relevant statutory material on property and probate may affect how a life estate operates; see the Colorado Revised Statutes for property and probate topics:

• Colorado Revised Statutes (main page)
• Title 38 — Property (Colorado Revised Statutes)
• Title 15 — Probate, Trusts, and Fiduciary Relations (Colorado Revised Statutes)

Because life-estate consequences often interact with probate, tax, Medicaid, and foreclosure/creditor law, you should review the statutes and consult an attorney who can apply them to your facts.

Alternatives to granting a life estate

• Sell the property now and split the proceeds — avoids long-term uncertainty and simplifies tax and title issues.
• Buyout: one owner buys out the other for a lump sum or structured payments.
• Joint ownership forms (tenancy in common or joint tenancy with right of survivorship) — each has different control and survivorship consequences.
• Use a written co-ownership agreement that spells out maintenance, taxes, insurance, and sale rules.

Helpful hints (practical next steps)

1. Get a current, professional appraisal of the property value before valuing life or remainder interests.
2. Talk to a Colorado real property attorney to draft a clear life-estate deed and any supporting agreement that allocates responsibilities (taxes, insurance, repairs, improvements, utilities).
3. Consult a tax professional about gift-tax, capital gains, and basis implications for both the life tenant and remainderman(s).
4. Ask an elder-law or Medicaid-planning attorney if any party may need means-tested public benefits in the future.
5. Record the deed promptly with the county recorder once the parties sign it so title reflects the arrangement.
6. Consider title insurance that accounts for the new interests, and make sure homeowners insurance lists the proper insured parties and covers liability.
7. Put dispute-resolution mechanisms in writing (mediation or arbitration) to reduce the chance of costly litigation later.