Effects of judgement against life tenant or remainderman
Rich Carreiro
2) The life estate part is real.
3) State is RI, but I'd be interested in hearing general info
if (as I expect) no one here is particularly familiar with RI.]
Back 15+ years ago my mother conveyed her home to me, retaining a life
estate, persuant to some plan her lawyer advised her to do.
There have been no problems and she treats the property as if she
owned it in fee simple (obviously aside from thinks like needing my
permission, which has been always granted, to use the property as a
security interest on a loan).
However, the other day I got to wondering what would happen if a
judgement were obtained against either of us (either by losing a tort
suit or by defaulting on a debt NOT involving the property as
a security interest).
So first:
What happens if a judgement is obtained against the life tenant?
1) Can the judgement creditor reach the property?
2) If so, in what manner can he reach it?
* Can he assume the rights and responsibilities
of the life tenant and and step into her shoes?
(And if so, is the life estate still marked by the
original life tenant's lifetime?)
* Can he force something akin to a partition sale, take
what he is owed by the life tenant from the life tenant's
share, remit the rest of the life tenant's share to the
life tenant, and remit the remainderman his entire share?
And if so, how are the values of the life estate and the
remainder interest determined?
Now flipping it around -- what if a judgement is obtained against
the remainderman?
1) Can the judgement credit reach the property?
2) If so, in what manner can he reach it?
* Can he assume the rights and responsibilities of the
remainderman and step into his shoes?
* Can he force a sale of the property, give the life
tenant the value of the life estate and take the debt
from the remainderman's share of the proceeds?
Basically, I'm just wondering what I have to worry about if my mother
got sued and lost, and more importantly, what my mother might have to
worry about if I got sued and lost, especially with respect to the chances
her her being forced out of her home.
--
Rich Carreiro rlc-...@rlcarr.com
Stuart A. Bronstein
[Parent retains a life estate in property and transfers the remainder
to her child]
> What happens if a judgement is obtained against the life tenant?
I'm just guessing here, making an analogy from the rights of owners
rather than creditors. But I'd think the creditor would be able to
do one of two things. First is that the sheriff would be able to
seize the life estate and sell it. When the life tenant dies the
property would revert to the remainderman, of course. But during the
life of the life tenant, the use of the property has a value.
Or it would be possible to have the property partitioned. Since it
can't be partitioned in kind, it would be partitioned by sale, with
the sale proceeds distributed between the two based on actuarial
values.
> Now flipping it around -- what if a judgement is obtained
> against the remainderman?
Same approach.
Barry Gold
[OP owns title to his mother's home, but she retains a life estate.
He asks what happens if some third party gets a judgment against
either his mother (the life estate holder) or OP (the remainderman).]
As a general rule, the law sees this as two _completely separate_
ownerships:
1) The life estate
2) The remainder interest
Unless the documents state otherwise, each interest can be conveyed
separately -- sold, put up as collateral for a loan, or taken to
satisfy a judgment.
So, in the last case, what happens?
1. A judgment against the life tenant (OP's mother)
If not otherwise prevented, the judgment creditor can sell the
life tenant's interest to satisfy the judgment. *But* the life
tenancy will end when OP's mother dies, regardless of who owns it
at that point.
But a life tenancy often contains a clause that says it ends if the
named life tenant ceases to reside there. So if somebody takes
over your mother's life tenancy and evicts her, the life tenancy
would end and you would own the whole thing in fee simple. The
buyer would get nothing.
2. A judgment against the remainderman (OP)
The judgment creditor can sell the remainder estate. This is
completely separate from the life tenancy. Basically, if this
happened, your mother would be allowed to continue to occupy the
home and in some respects to treat it as if she owned it.
But when she dies, the _new_ remainderman (whoever holds the
remainder title) would then take over the house and be able to live
in it, sell it, or whatever.
There are two significant disadvantages to having this happen:
a) The new remainderman would be unlikely to let your mother use
the house as collateral for a loan, as you have done. So if the
house needs repairs, your mother would need to either find
another source of money or live in the house without repairs.
b) There is a concept called "waste". Basically, the life tenant
is not allowed to "trash" the place and leave a smoking ruin for
the remainderman. SO if the house needs repairs, and those
repairs are necessary to prevent _further_ damage (e.g., a
leaking roof), the new remainderman could _force_ your mother to
make the repairs. (I'm not sure who pays for them, though.)
In practice, unless the life tenant is on her last legs, a
"remainder interest" has little market value. So it's unlikely that
most judgment creditors would bother going after your remainder
interest -- the cost of doing so, and of trying to sell a house on the
basis that "you can live here *after* this 70-year-old woman dies",
may just not be worth it.
A couple of other things to be aware of:
1. If you allow somebody to do work on the house, and they get a
mechanic's lien, they might be able to foreclose _that_. But only if
they have permission of both parties to do the work. In most states,
I suspect you would be in the same position as the owner of a
commercial building when the tenants want to have changes made to the
interior. That is, when you find out that the work is being done, you
have a certain number of days (10?) to post a notice that says, in
effect, "I'm the owner, and this work is being done without my
involvement, so any mechanic's lien is only against the tenant, not
against me."
2. If somebody obtains a judgment against both you _and_ your mother,
he can obviously foreclose on _both_ interests and then sell the
house, free and clear.
AFAIK, the life and remainder interests cannot be divided in a
partition sale. This is not the same as a "joint tenancy" situation.
With JT, the joint tenats own an _undivided_ interest in the whole
property. That means, the only way to separate their interests is to
sell the property and distribute the money.
But with a life tenancy, the interests are _not_ undivided. Just the
opposite: they have _already_ been divided, and each interest can (in
theory) be sold separately.
This is for discussion purposes only, and is not legal advice. I'm
not a lawyer. If you want legal advice, hire a lawyer.
--
Barry Gold, webmaster:
Conchord: http://www.conchord.org
Los Angeles Science Fantasy Society, Inc.: http://www.lasfsinc.org
blog: http://goldslaw.livejournal.com/
Stuart A. Bronstein
> But a life tenancy often contains a clause that says it ends if
> the named life tenant ceases to reside there. So if somebody
> takes over your mother's life tenancy and evicts her, the
> life tenancy would end and you would own the whole thing in
> fee simple. The buyer would get nothing.
At least in California, that rule doesn't apply when a life tenant
vacates the property involuntarily. I don't know off the top of my
head how that would play out if the creditor wants to take over the
life estate. But in practice I've seen the property in those cases
partitioned, and the life tenant paid off for the actuarial value of
his life estate.
Stuart A. Bronstein
>> * Can he force something akin to a partition sale, take
>> what he is owed by the life tenant from the life tenant's
>> share, remit the rest of the life tenant's share to the
>> life tenant, and remit the remainderman his entire share?
>
> No. Only possessory estates can be partitioned.
I'm not aware of that rule. It's not the rule in California, at
least. I've had properties involving a life estate partitioned on
more than one occasion.
Barry Gold
Hmmm...
I now I've seen trusts and other instruments that specify that if the
beneficiary loses his interest in the trust through the operation of
law, the income from the trust goes to a specified charity or other
third party. (I don't know if it would be legal to return it to the
trustor.)
So, what happens if the life-estate deed specifically says that if the
life estate is alienated in any way (sold, operation of law, etc.),
it goes to the remainderman or some third party?
Now, obviously there are situations where this is an obvious fraud on
the creditors (e.g., the trustor and beneficiary are the same or are
married, and the trustor and/or beneficiary is insolvent at the time
of creation of the trust, *or* the trust creation leaves the trustor
without sufficient funds to meet his normal expenses.
But aside from that, e.g., the trustor (or grantor) is in good
financial shape at the time of creation of the trust, and still has
sufficient assets and income to remain solvent, what happens when such
a clause is written in?
nos...@isp.com
> I've seen trusts and other instruments that specify that
> if the beneficiary loses his interest in the trust through
> the operation of law, the income from the trust goes to a
> specified charity or other third party.
> * * *
> what happens if [the financial and other relevant facts
> of the transaction would not be validly attackable on
> fraudulent conveyance grounds and if the deed creating]
> the life-estate deed specifically says that if the life
> estate is alienated in any way (sold, operation of law, etc.),
> it goes to the remainderman or some third party?
As your use of the word "alienated" suggests you recall at least in
part, you are referring to what has commonly been characterizable as
an "anti-alientation" condition -- "commonly" because very frequently
used and generally enforceable. Indeed, while there may be
person/transaction-specific reasons not to use such a provision, the
knowledgeable/prudent drafter probably will presume such a provision
ought be included.*
-------------------------------------
* And, of course, how to do this effectively, i.e., what
language to use and not to use, will depend on the exact
nature of the transaction - e.g., what appears to be a
garden-variety such provision to which you apparently
refer, in establishing a so-called "special needs trust"
for a disabled person supported by SSI or SSD benefits
subject to strict income limits, or in drafting a benefits
trust subject and pursuant to the strict anti-alienation
provisions of ERISA, etc.
> (I don't know if it would be legal to return it to the
> trustor.)
Whether in a conveyance of real property subject to a life estate or
creation of an inter vivos or testamentary trust context, there might
be any number of business or estate- or tax-planning or intra-familial
or other personal considerations why, as a (self-defined) practical
matter, the settlor of a trust or owner conveying real property would
not want to structure the transaction in this manner; but until you
provide factual context that warrants concluding otherwise, doubt
whether so doing would not be enforceable would be also not called
for.
Stuart A. Bronstein
> Stuart A. Bronstein <spam...@lexregia.com> wrote:
>>bg...@nyx.net (Barry Gold) wrote:
>>
>>> But a life tenancy often contains a clause that says it ends
>>> if the named life tenant ceases to reside there. So if
>>> somebody takes over your mother's life tenancy and evicts
>>> her, the life tenancy would end and you would own the whole
>>> thing in fee simple. The buyer would get nothing.
This potential problem is the result of competing interests related
to life estates. One is referred to as a life estate per autre
vie. You have the right to live in or otherwise exploit property
while someone else is alive. The right terminates when that other
person dies.
Then there is the concept of a terminable life estate, that only
exists as long as the life tenant is both alive and physically
resides in the property.
These two types of life estates are structurally incompatable, and
I can't see how they can both exist at the same time.
And you're right - if there is a terminable life estate of that
type, and the life tenant voluntarily moves out and tries to
transfer it to someone else, the transfer will not be effective,
because the life tenant vacating will terminate the life estate,
and the remainderman will generally take over.
What I was talking about is the situation where the life tenant
under a terminable life estate is forced to move by no fault of his
own. For example he gets kidnapped and he stops living in the
place for that reason. Or the state claims the property is
unsuitable for habitation, and the property has to be sold because
there's not enough money to fix it up. In those cases the life
tenant's rights should not terminate even though he ceases living
in the property.
> I now I've seen trusts and other instruments that specify that
> if the beneficiary loses his interest in the trust through the
> operation of law, the income from the trust goes to a specified
> charity or other third party. (I don't know if it would be
> legal to return it to the trustor.)
Sure. You can specify about anything you want. The problem comes
when a grant of rights is not specific enough to take every
possible future event into consideration. You simply can't
anticipate everything.
> So, what happens if the life-estate deed specifically says that
> if the life estate is alienated in any way (sold, operation of
> law, etc.), it goes to the remainderman or some third party?
Then that's what happens, normally. But if it's alienated because
the remainderman forged transfer documents, that might technically
come within the provision, but the courts would not enforce it in
that situation.
> But aside from that, e.g., the trustor (or grantor) is in good
> financial shape at the time of creation of the trust, and still
> has sufficient assets and income to remain solvent, what happens
> when such a clause is written in?
This is not an issue about what happens to the grantor or trustor.
It's all about the beneficiary and what the beneficiary does. So I
don't understand your question. What happens is that the clause is
followed, except to the extent that it is inequitable or contrary
to public policy to do so.