Risks of Granting a Life Estate Instead of Selling — North Dakota

Short answer: Granting the other owner a life estate can solve short-term occupancy or control issues, but it creates lasting legal, tax, creditor, and estate-planning consequences. Before you grant a life estate instead of selling, understand how life estates work in North Dakota and the main risks so you can choose the best path.

Disclaimer

This article is educational only and is not legal advice. For decisions that affect property rights, taxes, Medicaid eligibility, or estate plans, consult a licensed North Dakota attorney and appropriate tax or benefits professionals.

Detailed answer: what a life estate does and the main risks under North Dakota law

What is a life estate?

A life estate gives a person (the life tenant) the right to use and occupy real property for the duration of that person’s life. At the life tenant’s death, the property passes to the remainder holder(s) (the remaindermen) without passing through probate. A properly drafted deed (and recording of that deed) creates the life estate and the remainder interest.

How a life estate compares with selling a share or selling the whole property

Selling transfers ownership now and usually transfers the seller’s right to future appreciation, sale proceeds, and control. Granting a life estate keeps a split of ownership over time: one person holds present possession (life tenant), another holds a future interest (remainder). That split affects control, financing, taxes, and transferability.

North Dakota law and where to read the statutes

Many property rules that apply to life estates and remainder interests appear in North Dakota’s real property provisions. You can review North Dakota Century Code, Title 47 (Real and Personal Property), for recording and conveyance rules: NDCC Title 47. If you are thinking about partition, tax, or Medicaid effects, also consult local statutes and agency guidance.

Main risks when you grant the other owner a life estate

Loss of immediate control and use. A life estate gives the life tenant the right to possess and use the property during the life tenant’s lifetime. If you grant the life estate to the other owner, you or your heirs may not access or control the property until the life tenancy ends.
Difficulties selling or refinancing. A life estate complicates sale or mortgage transactions. Buyers and lenders generally prefer fee simple title. A life estate or remainder interest is harder to market and often sells at a discount. A lender may refuse to refinance existing debt unless the life estate is extinguished or the lender’s lien is subordinated.
Value and tax consequences. Granting a life estate can have gift and income tax implications. The transfer may be treated as a partial gift for federal gift-tax and basis rules. Capital gains treatment at later sale depends on how interests are transferred and whether the remainder is treated as an inherited interest. Consult a tax advisor before you sign anything.
Medicaid and public-benefit risks. In many contexts a life estate transfer may be considered a transfer of assets when evaluating eligibility for Medicaid or other needs-based benefits. This can trigger look-back periods and penalties. If long-term care benefits matter, check with an elder-law attorney or state Medicaid office (ND Dept. of Human Services – Medicaid).
Creditors and liens. Creditors of the life tenant or the remainder holder can sometimes attach the interest those persons hold. A mortgage that encumbers the property remains a lien on the real estate; creating a life estate does not remove or cure an existing mortgage. A foreclosure can still affect the life tenant and remainder.
Maintenance, taxes, and insurance disputes. Life tenants usually have the right to possess the property, and they also normally must avoid waste (damage that harms the remainder interest). The parties must clearly allocate responsibility for property taxes, insurance, utilities, and routine maintenance. If the life tenant neglects the property, the remainder holder may need to sue to stop waste or to force repairs.
Estate planning conflicts and unintended heirs. Granting a life estate without clear remainder terms can create disputes among heirs. A poorly drafted deed can leave ambiguity over who holds the remainder and when the remainder vests.
Irreversibility and difficulty of undoing the arrangement. Once you convey a life estate by deed and it is recorded, undoing the conveyance usually requires the life tenant’s agreement (and sometimes approval of heirs or the court). Undoing can be difficult or expensive.
Potential for court intervention (partition or other litigation). The coexistence of life estates and remainder interests can lead to litigation over partition, possession, or interpretation of deed language. While partition remedies exist for co-owners, courts sometimes treat vested remainder interests differently than present possessory interests; outcomes depend on the exact interests and wording.

Hypothetical examples (how risks play out)

Example 1 — Occupancy and repairs: Alice and Ben own a cabin as tenants in common. Alice gives Ben a life estate so Ben can live there. Ben refuses to repair the roof. Alice (as remainder holder) may need to go to court to force repairs or prevent waste, creating legal costs and delays.

Example 2 — Medicaid look-back: Carol grants her house life estate to her daughter to avoid selling. Later, when Carol applies for Medicaid-covered long-term care, the life estate transfer is examined under Medicaid transfer rules. Carol may face a period of ineligibility because the transfer reduced her countable assets.

Example 3 — Financing and sale value: David grants a life estate to his co-owner rather than selling his half-interest. Because the remainder interest is now split and the life tenancy lasts for the life tenant’s lifetime, a buyer or lender values the interests lower. David cannot refinance or easily extract cash from the property.

How to reduce the risks

Use a clear, professionally drafted deed that states who is life tenant and who holds the remainder, and whether the remainder is vested or contingent.
Record the deed in the county where the property is located to put third parties on notice.
Spell out who pays property taxes, insurance, utilities, and routine vs. major repairs. Consider a written occupancy and maintenance agreement.
Check any mortgages or liens first. Get lender consent if required. A deed that creates a life estate will not remove existing mortgage obligations.
Consult a tax advisor about gift, estate, and capital gains tax treatment before making the transfer.
If Medicaid eligibility or long-term care planning matters, consult an elder-law attorney before transferring any interest. State rules and federal Medicaid rules interact and can create penalties.
Consider alternatives: a sale of the share, a buyout agreement, a partition action, or a formal lease instead of a life estate might be better, depending on goals.

When to get a lawyer

Talk to a North Dakota real property or elder-law attorney when any of these apply: you are unsure who will pay debts or taxes, the property has a mortgage, you want to protect heirs, a party expects to rely on Medicaid, or the interests are complex (trusts, multiple owners, liens). A lawyer can draft clear deed language and related agreements, review lender requirements, and explain tax and benefits consequences.

Helpful Hints

Do not rely on an informal or verbal agreement to create a life estate. Use a recorded deed.
Get title and lien searches before you transfer any interest.
Ask for a written agreement allocating expenses and responsibilities between life tenant and remainder holder.
Keep documentation of payments for taxes, insurance, and repairs to avoid disputes about waste or responsibility.
If the goal is to let one owner live in the property while preserving value for heirs, compare a life estate with other estate-planning tools (trusts, buy-sell agreements, or sale with occupant lease).
Confirm how the deed words affect your plans: “life estate with remainder to X” is different from “life estate retained by grantor” — precise wording matters.
Contact the North Dakota Department of Human Services Medicaid unit early if long-term care might be needed: ND Medicaid.

For more on recording and conveyance rules in North Dakota, see North Dakota Century Code, Title 47 (Real and Personal Property): https://www.legis.nd.gov/cencode/t47.

If you want help locating a North Dakota attorney who handles real property or elder-law matters, consider contacting the North Dakota State Bar Association or your local county bar referral service.