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Possession of a title in fee establishes the interest in property known as the fee simple estate, i.e., absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, expropriation, police power, and escheat.Owners in fee simple may choose to improve or not to improve their property. They may also retain ownership or transfer property title by selling the property or giving it away. When a fee owner dies, the property passes to his or her heirs or to others named in the will. This creates an estate, a right or interest in property. Inherited property interests are frequently the subject of valuation assignments.Life EstatesA life estate is defined as the total rights of use, occupancy, and control, limited to the lifetime of a designated party. The designated party is known as the life tenant and is obligated to maintain the property in good condition and pay all applicable taxes. Life estates can be created by wills and by property deeds or transfers. For example, a fee owner may leave a will that gives land to his widow for her remaining lifetime and, at her death, the land is passed on to their children. Thus, the widow acquires a life estate and functions as a life tenant. A living fee owner may deed or transfer his or her property to a family member and, by the terms of the conveyance, retain a personal life estate. This practice eliminates the expense of probating the will after the owner dies.
To estimate the probable duration of the income from a life estate, an appraiser must rely on life expectancy statistics from actuarial studies. Once the net operating income from the estate and its duration are established, an appropriate discount rate can be selected and applied.
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