Demystifying Life Estate Deeds in Maryland

By Craig A. Enck, Esq., Partner, Rosenberg Martin Greenberg, LLP and Richard (Ricky) Adams, Associate, Rosenberg Martin Greenberg, LLP

In Maryland, you can make a beneficiary designation on your real property. This type of transaction is called a Life Estate Deed. It can be a very useful tool to avoid probate while also preserving tax benefits. There are two flavors: (1) a Life Estate Deed With Powers; and (2) a Life Estate Deed Without Powers.

Life Estate Deed WITHOUT Powers.

            This type of Deed has two parties to it.  The owner(s) who execute a new deed (called the “grantor(s)”) and retain a life interest in the property.  Once the Deed is executed, they are then called the “Life Tenants”.  This means that they retain an exclusive right of enjoyment to the property during their lifetimes, even if they don’t actually reside in the property.  The second parties to the Deed are the “Remaindermen,” who become the owners of the property by operation of law upon the death of the Life Tenant(s).  

            Once in place, the Life Tenants are restricted from changing the deed unless the Remaindermen also join in the transaction by signing any new deed.  Thus, any future selling, gifting, leasing, conveyancing or mortgaging of the property would require the Remaindermen to sign the requisite legal documents as well.  A Life Tenant should not execute this type of deed if there is any possibility that a Remainderman would refuse to follow whatever the Life Tenant’s wishes might be with respect to the property, such as selling the property in the future. 

It is also possible that the Remainderman could predecease the Life Tenant. In this case, the Remainderman’s interest will either (a) pass to the surviving Remainderman (if the Remaindermen interest is held as “joint tenants with a right of survivorship”) or (b) pass to the deceased Remainderman’s estate (if the interests were held as “tenants in common”). Thus, it is important to analyze whether Remaindermen have any creditor problems before signing this type of Deed. If multiple Remaindermen are chosen, you must decide whether you wish their interests in the property to be owned as “tenants in common” or as “joint tenants with rights of survivorship”. A tenancy in common puts the share at risk for creditors, whereas the joint tenants with rights of survivorship interest would pass free of any creditor claims to the surviving joint tenant.

            The laws governing Maryland Medical Assistance (“Medicaid”) consider the date a life estate deed is signed as the date the grantor is deemed to have made a gift of the real estate.  Should the grantor later apply for Medicaid, this date becomes very important.  After five years have passed since the date of Life Estate Deed execution, the gift under the deed is exempt from the imposition of a penalty. However, if an application for Medicaid is brought within the five year period, then the deed transfer triggers a waiting period based on the deemed value of the gift.  The value is measured by using the actuarial life expectancy of the grantor as shown on a table used by the Department of Social Services when a Medicaid application is presented.  It is therefore very important not to apply for Medicaid during the five year period unless you first receive legal advice as to how to best protect the assets. 

            Another issue on sale is capital gains tax.  The Life Tenant can avoid capital gains tax on the sale of a principal residence by using the allowable tax exclusion.  Such an exclusion will not apply to a Remainderman (unless living at the property).  Capital gains taxes could be imposed on a Remainderman’s portion.  If you later contemplate selling the property, then you should consult your attorney before listing the property for sale to weigh your alternatives including re-titling the property before selling.

Life Estate WITH Powers.

            Under this type of Deed, the Life Tenant is not restricted from doing anything the Life Tenant would like to do with the property including selling, gifting, leasing, conveyancing or mortgaging the property.  In contrast to the Life Estate Without Powers, such action would not require the consent of the Remaindermen.

            If a Remainderman predeceases the Life Tenant, once again, the ownership will depend on how the Remaindermen’s interests are held.  If more than one Remainderman is to be listed, a decision should be made as to whether the remaindermen should hold title as “tenants in common” or as “joint tenants with rights of survivorship.”

As tenants-in-common, upon the death of the Life Tenant, provided there is a Will, a deceased Remainderman’s interest would be a probate asset reportable in the Remainderman’s estate.  The remainder interest would pass to that deceased Remainderman’s heirs or, if there is no Will, title would pass in accordance with Maryland intestacy laws.  Either scenario could result in parties owning the property that the Life Tenant never intended to own the property.  Alternatively, if the Remaindermen hold title as “joint tenants with rights of survivorship,” then upon the death of one Remainderman, the surviving Remainderman would be the only persons who would own the property at the death of the Life Tenant.

            Under current laws governing Maryland Medicaid, a single person who is a Life Tenant on this type of Deed is disqualified from being eligible from receiving Medicaid benefits.  The Deed would have to reflect the Medicaid applicant’s name as the owner, not as a Life Tenant, so the State of Maryland can place a lien against the Medicaid applicant’s interest in the house after six months of Medicaid benefits being paid.


            Both types of Life Estate Deeds offer these benefits: (1) upon the death of the Life Tenant, the ownership of the Property automatically becomes vested in the Remaindermen, without subjecting the property to the probate process; (2) there is no need to prepare a new deed as the Remaindermen are already listed on the deed (although common practice is to either file a copy of the Death Certificate or record a Confirmatory Deed); (3) the tax basis of the property in the hands of the Remaindermen is the fair market value on the date of death of the Life Tenant for capital gains tax purposes; and (4) the life estate deed will not cause a senior family member to lose his or her homeowner’s property tax credit for property tax purposes. The attorneys at Rosenberg Martin Greenberg, LLP are experienced in all aspects of real estate, trust and estate planning, and tax planning matters, and more.  Please contact Craig A. Enck at 410-895-1202 or or Ricky Adams at 410-727-6674 or for a free consultation