A life estate provides a means of transferring real property before death. In a life estate, Person A conveys the title to his house to Person B with the stipulation that Person A may continue to live in the house until his death, at which time Person B assumes sole ownership. It sounds simple enough, but life estates can produce unforeseen complications, as one recent California appeals court decision demonstrates. This case is discussed here for informational purposes only and should not be considered a complete statement of California law on the subject of life estates.
McCay v. Turnboo
The parties in this case are a stepfather and stepson. The stepfather, Warren Turnboo, married his wife Helen in 1960. She had a son, Brian McCay, from a prior marriage. Helen Turnboo brought to her second marriage the house she acquired following the dissolution of her first marriage. At the time of her second marriage, there was a mortgage of about $9,600 on the property. Helen Turnboo remained sole owner of the house, but she and her second husband lived there together and they use their funds to pay household expenses, including the mortgage. The mortgage was finally paid in 1978.
In 1987, Helen Turnboo created a living trust as part of her estate plan. The trust granted Warren Turnboo an unconditional life estate in the house upon her death. Helen later conditioned the life estate to require her husband to live continually in the house by himself following her death. In other words, the life estate would terminate if he left the house or remarried. Brian McCay would formally acquire the title to the house upon his mother’s death, and become sole owner once his stepfather’s life estate terminated.
Helen Turnboo died in 2005. Following his mother’s instructions, Brian McCay recorded a deed transferring title to the house to himself while acknowledging Warren Turnboo’s life estate. Everything proceeded as planned until 2011, when McCay sued his stepfather, claiming he had failed to pay some property insurance premiums. McCay said this failure violated the terms of the life estate.
The courts disagreed. A trial court held that paying insurance premiums was never a condition stipulated by Helen Turnboo in her estate planning documents creating the life estate. More importantly, it turned out Warren Turnboo rightfully owned part of the house outright. Since marital funds were used to pay down the mortgage and make other improvements, the court explained, part of the house became community property. And under California law, Helen Turnboo could only dispose of one-half of any community property interest through her trust. The remainder-a roughly 38% interest in the house-belonged to Warren Turnboo. The Court of Appeals later upheld the trial court’s decision in its entirety.
Taking Care When Using a Life Estate
As this case shows, it’s important to specify the conditions of any life estate created through a will or trust. All of the parties involved should be on the same page when it comes to what is expected and required. As with all such documents, it’s essential you work with an experienced California estate planning attorney. Contact the Law Office of Scott C. Soady today if you have any questions.