What a life estate is and how it works

A life estate splits ownership into two roles: the life tenant who has the right to possess and use the property during the life tenant’s lifetime, and the remainderman who holds the future interest and receives full ownership when the life estate ends (usually at the life tenant’s death). A life estate can be created by deed, will, or other conveyance. The life tenant typically must avoid “waste” (damaging the property) and often pays routine expenses; the remainderman has an interest in protecting the property’s long‑term value.

Major risks and downsides under New Hampshire property practice

The following risks are important to understand before granting a life estate instead of selling:

• Loss of marketability and ability to sell. A life estate greatly reduces the ability to sell the property free and clear. Buyers and lenders view life‑estate interests as encumbrances. To sell clear title, the remainderman must agree, or the life estate must be terminated.
• Difficulty borrowing or refinancing. A lender will not usually accept a life estate as clear collateral. Mortgaging the property typically requires consent from both the life tenant and remainderman, and lenders may refuse loans or demand payoff of existing liens.
• Valuation disputes and uncertain compensation. If you intend to compensate the other owner (remainderman or life tenant) instead of selling, you must value the life estate and remainder interest. Valuations can be complicated and contested. Without a formal appraisal and clear agreement, disputes often arise.
• Tax consequences and capital gains timing. Granting a life estate affects basis and capital gains timing. For example, the remainderman’s tax basis and when a capital gains event occurs change compared to an outright sale. Consult a tax professional about New Hampshire and federal tax impacts.
• Responsibility for taxes, insurance, and maintenance. The deed should specify who pays property taxes, hazard insurance, major repairs, and routine maintenance. If responsibilities are unclear, disputes and unpaid bills may follow. In New Hampshire, unpaid property taxes can lead to tax liens and possible sale.
• Creditor exposure for both parties. Creditors of the life tenant may be able to reach the life tenant’s interest (the right to possession), and creditors of a remainderman may try to attach the future interest. This creates complexity for both parties’ creditors and can risk forced sale or liens in some circumstances.
• Medicaid and public benefits risk. If the life tenant later applies for Medicaid or similar programs, the life estate arrangement may affect eligibility or be treated as a transfer depending on timing and program rules.
• Potential for waste, deterioration, or conflict. The life tenant controls possession and use. If the life tenant neglects the property or makes major alterations, the remainderman may have limited remedies other than a lawsuit for waste. Conflicts over use, rentals, or major repairs are common.
• Complications from multiple owners or heirs. If multiple remaindermen or co‑owners exist, coordinating consent for major decisions (sale, mortgage, or improvements) becomes harder and can lead to partition actions in New Hampshire courts.
• Recordation and title insurance problems. Creating a life estate requires careful deed drafting and recording. Title companies often charge for a special endorsement or may refuse to insure title without resolving the life estate language. Unclear or poorly drafted deeds create long‑term title problems.
• Unexpected termination or modification issues. While life estates normally end at death, some legal events (divorce, bankruptcy, or court orders) may affect the interests. Reversing or modifying a life estate later usually requires agreement of all parties or a court order.

Practical examples and common fact patterns

Here are a few hypothetical examples that illustrate the risks:

• Example 1 — Older co‑owner wants to stay: Owner A grants Owner B a life estate so B can live in the house. Later, Owner B gets sick and cannot maintain the house. Property taxes go unpaid and a lien attaches. Owner A (remainderman) faces expense and potential legal action to remove liens.
• Example 2 — Wanting liquidity: Owners agree to a life estate to avoid selling. Owner A later needs cash but cannot sell or mortgage without Owner B’s consent. A forced partition or negotiated buyout may be costly and time‑consuming.
• Example 3 — Family disagreement: Parent grants life estate to one child for life and names other children as remaindermen. If the life tenant child rents the property or makes major changes, the remaindermen may sue for waste or lost value.

Alternatives to granting a life estate

Consider these options before creating a life estate:

• Sell the property outright and split proceeds according to agreement.
• Buyout one owner’s interest for a fair market value.
• Use a tenancy‑in‑common agreement or partition agreement with clear terms about buyouts, sale, and maintenance.
• Use a trust (revocable or irrevocable) to control distribution and avoid some problems of life estates while retaining management provisions.
• Create a transfer‑on‑death deed (where available) to pass title at death without a present split of interests.

How to reduce risk if you proceed with a life estate

• Have a New Hampshire attorney draft or review the deed. Precise language should define rights and duties: taxes, insurance, major repairs, rental income, and liability.
• Get a current, independent appraisal to set clear valuation expectations for life estate and remainder interests.
• Record the deed promptly in the county land records where the property sits.
• Obtain title insurance and confirm whether the title company will insure the life estate and remainderman’s interest.
• Put agreements in writing about expense sharing and dispute resolution (mediation/arbitration clauses help limit litigation).
• Consider escrow or reserve funds for taxes and major repairs to prevent liens and disputes.
• Discuss tax implications with a CPA—both federal tax and state filing matters—and get estate planning advice if the life estate is part of an overall plan.

Where to find New Hampshire statutory and procedural materials

Statutes and rules that govern conveyances, recording, and related property matters are published by the New Hampshire General Court. For statutory text and links to chapters on conveyances and recording, see the New Hampshire Revised Statutes Online: https://www.gencourt.state.nh.us/rsa/html/. Also contact the county registry of deeds where the property is located for recording practices and local forms.

Helpful Hints

• Do not rely on a verbal agreement. Always get deeds and agreements in writing and record them.
• Ask for a written appraisal and get multiple bids for any long‑term buyout or sale plan.
• Confirm who will carry homeowner’s insurance and whether it covers liability for tenants or guests.
• Check whether a mortgage exists and whether the mortgage holder must consent to a deed creating a life estate.
• Talk with a New Hampshire real estate attorney and a tax advisor before signing anything that changes title.
• Consider mediation clauses to reduce the cost of future disputes between life tenant and remainderman.
• Record a clear, signed deed at the county registry of deeds. Unrecorded transfers create risk of later claims.