What is a Remainderman, Definition, Advantages and Disadvantages

 What is a Remainderman?

A remainderman is a legal term for the person who inherits or is entitled to inherit property upon the expiration of the former owner's life estate.

A life estate is an arrangement whereby a person's ownership of property is limited to their lifetime and then transferred back to the original owner or a third party. The remainderman is the person to whom property ownership is transferred.

In a trust account, the remainderman receives the remaining principal. However, this transaction occurs only after all necessary payments, such as expenses, have been made.

The remainderman's right to the property can only be exercised upon the life tenant's demise. The remainderman has no claim to the property so long as the life tenant is still alive. They have the right to expect, however, that the life tenant will maintain the property well, pay property taxes and homeowner's insurance premiums.

In addition, they have the right to halt any sale or encumbrance of the property, such as a home equity loan. The life tenant may sell or encumber the property with the remainderman's permission. In the event of a sale, the remainderman would be entitled to a portion of the proceeds.

Remainderman Definition

A person who has or will or may receive a remainder

In property law, a remainderman is a person who stands to inherit property at a future date upon the termination of a preceding estate, typically a life estate. A remainderman is a third party who is not the creator, initial holder, or heirs of the estate. For instance, if Blackacre is granted "to Mary for life, then to John," Mary has a life estate and John is the remainderman.

• The remainderman is the person who inherits property when a life estate expires.

• In the case of trust accounts, the remainderman gets the remaining principal after the distribution of the estate.

• A remainderman interest is a person's future interest in an asset.

• Before a remainderman can exercise his or her right to use and hold trust property, the trust must be dissolved.

• The life tenant may sell inherited property with the consent of the remainderman.

Understanding a Remainderman

The remainderman may only exercise his right to hold and use the trust's property after the trust has been fully dissolved. Person B is the actual rightful owner of a future interest, i.e. the remainder, if the owner of physical property willingly gives a piece of property to Person A for life and then to Person B upon the death of Person A.

This means that Person B's interest becomes active only upon the demise of Person A. The remainderman will inherit the property upon the former owner's death or the conclusion of his or her estate. The property may also be inherited if a specific notation to that effect is included in the trust.

Life Estate Advantages and Disadvantages

A life estate deed, as opposed to a trust, is a document through which the property owner, or grantor, transfers legal ownership to another person, or the life tenant. In many instances, the grantor and the life tenant are the same person, though this is not always the case. Typically, the deed will state that the occupant may use the property for the remainder of their life.

Almost all deeds granting a life estate will also name a remainderman, or the person or persons who will inherit the property after the life tenant passes away.

Life estates are frequently used to provide for the welfare of another individual without transferring ownership of the relevant property. For instance, a deceased homeowner may grant their spouse a life estate in the family home while naming their children as remaindermen. This arrangement ensures that the spouse will continue to own a home, and that their children will ultimately inherit it.

A significant advantage of a life estate deed is that it can be used to transfer property upon the death of the life tenant without the property becoming part of the life tenant's estate. Consequently, the property is not subject to probate. The life tenant's interest in the property terminated upon death and was not included in the life tenant's estate.

Advantages of a Life Estate

• Life Estates are more straightforward than other bequests, requiring only a deed recorded at the county recorder's office.

• Life tenants may lease or rent the property comprising their life estate as if they were the owner.

• Life estates can be administered outside of the probate court system.

• The remainderman inherits the property with a favorable tax basis.

• Unlike regular tenants, life tenants are responsible for maintaining and insuring the life estate's property.

Disadvantages of a Life Estate

• Life estates cannot be terminated without the consent of both the life tenant and remainderman.

• Life tenants may still cause property damage, to the detriment of the remainderman.

• The ownership of a life estate may be regarded as a financial asset, thereby affecting the life tenant's eligibility for certain social services.

Remainderman Rights

All parties involved in life estate deeds, particularly in real estate transactions, must be aware that both the life tenant as well as the remainderman have ownership interests, despite having different possession rights. The life tenant is the property's owner until death.

However, the remainderman also owns the property while the life tenant is still alive. They have an interest in ensuring that the life tenant does not damage, devalue, encumber, or attempt to sell the property. The life tenant may sell the property with the consent and participation of the remainderman. Depending on the life tenant's age and life expectancy, however, the remainderman may be entitled to a larger share of the proceeds.

A major advantage of life estates is that they do not require probate.

Example of a Remainderman

In cases of family inheritance, life estates and remaindermen are often relevant. Consider a wealthy parent who intends to leave the family home to his or her spouse and children. Recognizing that the spouse and the children are probable to quarrel over a divided asset, the benefactor decides to leave the asset to the spouse as a life estate: the spouse can continue to live in the home until their death, but the children will ultimately inherit the house.

Although a life estate is easier to establish than other bequests, it still requires consultation with an attorney. The life estate need only be registered with the county recorder after the necessary consultations; there is no need to go through probate court.

This arrangement ensures the spouse's comfort while preserving the family's ownership of the home. The life tenant is not required to pay rent, but cannot sell the property and is responsible for all maintenance costs. The home passes to the remaindermen, in this case the couple's children, upon the demise of the surviving spouse.

Sale of the Property

A remainderman may sell his property interest, but the buyer would acquire the property subject to the life tenant's rights. In other words, the buyer would not obtain full ownership of the property until the death of the life tenant, who would continue to occupy the property until then.

If both the life tenant and remainderman agree and sign transfer documents, the property may be sold prior to the life tenant's death. In this case, the remainderman is entitled to a larger share of the proceeds than the life tenant, with the exact share determined by the life tenant's age and life expectancy. In other words, the remainderman's share increases with the life tenant's age.

The process of estate planning can be complicated, especially when it involves life estates. Working with a professional in estate planning can ensure that your will, trust, or deed are properly drafted and executed.

Importance of Trustees in Beneficiary and Remainderman

When applying a distribution standard, a trustee must strike a balance between the needs of the current beneficiaries and those of the remainderman. In fact, this rule, described as a duty of impartiality, serves as the foundation for the Uniform Trust Code and the local Code rules mandating that information be provided to the current life beneficiary and, at a minimum, the first-line remainderman.

The duty of impartiality governs a trustee's conduct regardless of the trustee's identity, including in the 1939 Mrs. Caver case in which a trustee was also a beneficiary. As a trustee, Mrs. Caver was required to exercise her authority to sell for the equal benefit of all remaindermen. Any grant of a gift, benefit, or advantage to one remainderman at the expense of the others would be a violation of this duty.

Mrs. Caver was the trustee as well as current beneficiary who "sold" property to one of the remaindermen for less than the property's fair market value and received a note in return.

Remainderman FAQs

What is the difference between a Life Estate with Powers and one without Powers?

A life estate with powers allows the tenant to sell, mortgage, and or encumber the property. In a life estate without powers, the life tenant cannot encumber the property without the remainderman's permission. Both are efficient methods of transferring property without the burden of probate.

Is the Remainderman a Recipient?

Yes. A remainderman is the beneficiary of a life estate as well as stands to inherit any remaining property upon the demise of the life tenant.

Is it Possible to Remove a Remainderman from a Life Estate?

A remainderman cannot be removed without their consent from a life estate. This would necessitate the execution of a new deed transferring their life estate interest.

Bottom Line

A remainderman is a potential beneficiary of a life estate. A life estate is a tool for estate planning, but it should not be used lightly due to its irreversibility. Establishing an irrevocable trust is an alternative approach to achieving the same goal. The life tenant shares many of the same rights and obligations as a homeowner, but not all. Certain rights must be allocated to the remainderman.