Committed To A Streamlined, Lower-Stress Client Experience

Estate Planning and the Enhanced Life Estate Deed

On Behalf of | Nov 23, 2008 | Estate Planning, Firm News, Real Estate

One of my clients is an elderly divorcee. She recently contacted me with several concerns about her estate. Her primary concern was that she wanted to keep her home out of probate when she passes away. Like most people, she doesn’t like the idea of her property being tied up in legal limbo for months before her beneficiaries (in this case, her three sons) take possession of the home. She was advised by another attorney to set up a trust, put her home (her only asset of real monetary value) into the trust and then manage the trust until she passes away. She brought the matter to me as she does with all of her legal concerns. I advised her that a simpler way for her to handle the matter might be to execute an “Enhanced Life Estate Deed” also known as the “Lady Bird Deed” (named in honor of former First Lady, Ladybird Johnson) or a “Transfer on Death Deed.”

What is an Enhanced Life Estate Deed?
An Enhanced Life Estate Deed is a document that would deed my client’s home to her children but reserve for my client a life estate coupled with the ability to sell the property at any time. This is called an “Enhanced Life Estate.” In layman’s terms, this means that (1) my client still owns the property; (2) my client can sell the property at any time without notifying her beneficiaries; and (3) if my client never sells the property, the house will pass directly to her beneficiaries after she passes away without going through probate.

Florida, Texas, Ohio, California, Kansas and several other states now accept this form of conveyance. In these states it is a recommended alternative to the traditional life estate deed. Of course, where a life estate can result in unwanted capital gains taxation, it should not be used, and other forms of planning should be considered (such as a living trust).

Lady Bird Deed v. Quitclaim Deed
In the past, people have used a Quitclaim Deed in an attempt to avoid probate. The Quitclaim Deed was supposed to make things easier for beneficiaries. A Quitclaim Deed deeds property to one’s children while the parent retains a life estate interest. The problem with the Quitclaim Deed is that my client would not be able to sell or encumber (e.g., mortgage) her property without the consent of her beneficiaries.

Further, creditors of my client’s beneficiaries could obtain an enforceable lien against her home because the beneficiaries could not claim the home as homestead property. Also, spouses of my client’s beneficiaries could claim an interest in the property, either upon their husband’s death or in the event of a divorce.

The Enhanced Life Estate Deed does not share the above pitfalls. For more information about the difference between the Enhanced Life Estate Deed, Warranty Deed and Quitclaim Deed, please contact our office at 813-265-004, and ask for Jeff Aman.

Other Benefits to a Lady Bird Deed
The Enhanced Life Estate Deed has several other benefits including:
(1) bypassing probate;
(2) it does not result in capital gains for the beneficiaries because they will not receive any value until my client passes away. When she passes away, her beneficiaries take the home at a “stepped-up basis” – not my client’s original basis. A “stepped-up” basis is the value of the property on the day of my client’s death;
(3) it does not open up the property to the beneficiaries’ creditors during my client’s lifetime because the beneficiaries have no interest until my client has passed away without selling the home;
(4) it allows my client to sell her home at any time, compared to a regular life estate where she would not be legally entitled to sell her home.

Language Creating the Deed
Attorney’s Title Insurance Fund has recognized certain specific language that must be included to validate an Enhanced Life Estate Deed. Without the specific language the deed will be declared invalid for transferring the real estate in the manner outlined above.  We charge our clients $350.00 to meet with you, prepare and record the deed.