Life Estates Land
Life estates, also known as life interests, are a well-established part of estate planning.
The owner of a life estate (“the life tenant”) has the right to occupy, use and deal with real and/or personal property for his or her lifetime.
When the life tenant dies, the remaining interest in the property then passes to the next person entitled, historically named the “remainderman”.
The interest remaining after the death of the life tenant is called the “remainder interest”.
After the death of the life tenant, the remainderman enjoys full ownership of the property.
A life interest in property has a value that can be determined by an actuarial calculation done by a professional actuary.
The purpose of this commentary is to simply give an overview of the process as well as an example.
It should not be followed as any sort of professional opinion as to how to calculate such interests.
The formula consists of taking the date of birth of the life tenant as at the date of the creation of the life estate, rounded off to the nearest year,
then comparing the age to an actuarial table to determine the”life tenant factor”
Then multiplying that number by the market value of the land in which the subject life interest is being created to calculate the value of the life interest.
That figure in turn is subtracted from the market value of the land to calculate the value of the remainder interest
(The life interest plus the remainder interest must equal the total market value of the land being transferred.)
Pam aged 77 is the sole registered owner of land valued at $185,000.
Pam decides to transfer this land to her son for $80,000, subject to a reservation of a life interest in it for herself.
Referring to actuarial tables, Pam’s life tenant factor is calculated as a female aged 77 years giving her a life tenant factor of .38603
The value of the life interest is $185,000 x .38603 = $71,415
Therefore, the value of the remainder interest is $185,000 – $71,415, = $113,585