Life estates
When you pass away leaving real property (i.e. house), the property is sold or goes to your heirs, either under a will or through intestacy. Typically, the heirs have the right to do as they wish with the property, such as selling it, keeping it, repairing it, or renting it. Another option is to give someone a life estate.
Under a life estate, that beneficiary has the right to the property for the rest of their life, and then the property reverts to a remainderman. The beneficiary is still responsible for maintaining the property and paying the expenses such as mortgages, taxes, and utilities. While the beneficiary is alive, he can reside in the property or rent it out. He can make improvements on the property or keep it as is. Typically, if he rents it out, the beneficiary gets to keep the rental income. However, when the beneficiary passes away, the property does not go to his or her heirs, rather is goes to the heirs of the original owner.
There are several advantages to a life estate. For example, if you leave a beneficiary a life estate, you know that they will get to stay in the property for their life, and you still get to dictate who gets the property upon his passing. Additionally, there may be a savings on the inheritance tax, depending on who inherits.
One down side is that neither the beneficiary nor the remainderman has the right to sell the property on his own during the beneficiary’ lifetime. The beneficiary cannot sell the property because the remainderman has ownership upon the beneficiary’s passing, and the remainderman cannot sell as the beneficiary has the right to stay during his life. Both parties must agree to sell together.