A life estate gives a person (the life tenant) the right to use and enjoy a property for the rest of their life. On their death, the property passes automatically to the remainderman named in the deed or will. It is often used so a surviving spouse can stay in the family home while children ultimately inherit it.
How is a life estate valued?
The value is split between the life interest and the remainder based on the life tenant's age and an assumed discount rate. The older the life tenant, the smaller the life estate and the larger the remainder. Formal valuations use actuarial tables; this tool uses a simplified present-value estimate.
Are there tax consequences to a life estate in Canada?
Yes. Creating a life estate in appreciated property can be a deemed disposition triggering capital gains tax, and the principal residence exemption and attribution rules can apply. A properly structured life interest can also affect probate and future capital gains, so tax advice is essential.
What is a remainder interest?
The remainder interest is the right to receive full ownership of the property once the life estate ends (usually on the life tenant's death). Its present value is the property's value discounted over the life tenant's expected remaining lifetime — the longer that period, the lower the remainder's current worth.