Enhanced Life Estate Deeds (Lady Bird Deeds)
For persons trying to pass their property to their heirs without going through probate and without setting up a trust, a problem area has always been real estate. You can add a transfer on death designation to your bank and investment accounts and maintain full ownership of those accounts until your death. At that time the accounts would be paid directly to your designated “beneficiary” without probate.
Real estate presented more of a problem. A person (called the “Grantor”) could transfer their property to their children (or anyone else) and retain a “life estate” in the property. Under this arrangement, the Grantor would own the property, with full right of occupancy for her lifetime and at the time of her death, it would pass, free of probate, to the children (or other persons) named as the “remaindermen.”
The big problem with this arrangement would arise when the Grantor wanted to sell the property during her lifetime. Since she had transferred the interest in the property that existed after her death, she could only sell her life estate. This meant that the buyer would only own the property until the Grantor’s death. At that time title would automatically revert to the remaindermen. It’s easy to see why no one would want to buy from the Grantor under those circumstances. In order to give the buyer full fee simple title to the property, the remaindermen would also have to sign the deed.
Florida has a solution to this problem. It’s called the Enhanced Life Estate deed. An Enhanced Life Estate deed allows the Grantor to retain a life estate with complete control over the property. She has no obligations to the remaindermen and does not need their consent to sell, mortgage, gift or otherwise transfer the ownership of the property. That is where the “enhanced” feature comes in.
The remainder beneficiary of an Enhanced Life Estate has no vested ownership interest prior to the Grantor’s death and in the case of homestead property, it would not cause any revaluation of the Florida save our homes exemption for property tax purposes. It is not a completed gift until the moment of death and would therefore get a step up in basis for capital gains at the date of death
ADVANTAGES OF THE ENHANCED LIFE ESTATE DEED
- Allows you to pass your real estate at death without probate.
- Does not affect the homestead status of the property
- Does not require lender approval or condominium or homeowner association approval
- You will not be required to file a gift tax return since IRS considers the transfer and incomplete gift
- The value of the interest transferred will not be considered as a completed gift for Medicaid purposes
- and will not be the basis for a “waiting period” that could delay your access to Medicaid benefits to pay for skilled nursing home care
DISADVANTAGES OF THE ENHANCED LIFE ESTATE DEED
- At your death, the title goes directly to the remainder beneficiaries. If one or more have judgment liens against them, the lien will immediately attach to the property.
- There is no central “trustee” who can sell the property on behalf of the other remainder beneficiaries. All of the remainder beneficiaries will be required to consent to the terms of the sale.
- If a remainder beneficiary is unable to manage his or her affairs, a guardian may have to be appointed to deal with the property.