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Summary

A sale subject to a life estate is a sale of your property in which the buyer takes over ownership, but you get to live in the house for the rest of your life.

The price generally reflects the current value of the property, what the buyer thinks will be your life expectancy, and the terms under which you will continue to live in the house.

The terms under which you stay in the house are negotiable. Generally:

  • The seller does not pay rent while living in the home.
  • The seller does pay for the maintenance of the home while living in it.
  • Taxes usually become the obligation of the new owner.

To avoid potential problems with the purchaser, it is advisable to have a lawyer draft the appropriate documents and file them as necessary.

For information see:

Price To Anticipate When Selling Real Property Subject To A Life Estate

Rather than fair market value, the amount you receive will be based on:

  • The current market value of the property.
  • the cost of the use of the property that the new owner will not receive. For example, if the new owner thinks he could rent the house for $1,000 a month, and that you will live in the house for another ten years, he would reduce the purchase price by the present value of $1,000 a month times ten years.

Your health condition may help you negotiate a higher price because the buyer may think you have a lesser life expectancy than a healthy person your age. (From your perspective, keep in mind that every health condition has survivors- and you may be one of them. Statistics only relate to large numbers of people, reflect the past, and do not predict what will happen to any particular person).

If you don't live as long as is assumed in calculating the price, you will in effect have sold your house at a big discount.

Finding A Buyer For A Property Subject To A Life Estate

It is difficult to find people to enter into this type of arrangement. 

Try family and friends. Of all potential purchasers, they are the most likely to want to help. In real terms, their help is also an investment.

Non-profit organizations are sometimes interested in these situations, but they generally expect to receive the remaining value of the property as a charitable contribution.  Still, it is at least worth contacting the non-profit organizations in your area - especially the ones that work with people who have the same health condition you do.

Taxes

When you sell your house, the difference between what you receive and your basis (the original purchase price plus any capital improvements) is potentially taxable as a capital gain.  However, if you owned the house and used it as your principal resident for at least two of the previous five years, you can probably exclude the gain up to $250,000 or $500,000 if you're married and file a joint return.