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Legal Notes: Life Estate Deeds and Insurance Coverage

Picture of a house in the fall with a treeMany homeowners, as they get older, convey their real estate to family members and retain a life estate. When they create a life estate deed they no longer are the sole owners of the real estate and will then own what is known as a life estate interest, and the person or persons they conveyed the real estate to will own what is known as remainder interest. The owner or owners of the remainder interest only obtain full title ownership to the property on the date of death of the owner of the life estate interest.  When owners of life estate interests are still living, they are responsible for expenses such as real estate taxes, insurance, repairs, and maintenance and upkeep of the real estate. Sometimes the owners of the remainder interests will contribute their own funds, if the life estate tenant is no longer able to afford the upkeep and expenses, or is unable because of physical or cognitive decline.

The insurance company denied coverage for the loss of the real estate because the niece was not the named insured on the policy. 

Transfer on death deeds, which Massachusetts does not have, are similar to life estate deeds only that on the date of death full ownership transfers to the person or persons named to receive the property.  One of the main differences of a transfer on death deed is that the property owner retains full ownership until the date of death, unlike the split life estate interest/remainder interest ownership of a life estate deed. There was an interesting Minnesota Appeals Court case decided in February, Strope-Robinson v. State Farm Fire and Casualty Company,  Case No. 20-1147, regarding insurance coverage on a transfer on death deed.  The decedent in this case had homeowners insurance on the property in his name alone.  On the date of his death his niece, to whom he transferred the real estate, did not obtain insurance in her name.  A few days later his former wife burned down the house.  The insurance company denied coverage for the loss of the real estate because the niece was not the named insured on the policy.  The administrator of the estate sued the insurance company, but the court took the side of the insurance company.

This case brings up an important issue of continuous insurance coverage in case of any type of loss with a life estate deed.  Check with your insurance agent or company for their policies and requirements for named insureds with life estate deeds, and continuing coverage when the life tenancy ends.  Perhaps the insurance company may require that the remainder owners be on the policy as additional insureds.  The remainder interest owners being on the policy as additional insureds would also ensure that if the life tenant owner failed to continue coverage, they would be notified and could take action to maintain coverage on the property.