Last Update: 2/26/18
An enhanced life estate deed is an attractive way to transfer real property at death while also maintaining flexibility during the grantor’s lifetime.
Traditional Life Estate Deeds
The traditional Life Estate Deed is an estate-planning tool with several benefits including allowing an individual to convey his/her homestead (real property which is designated as the owner’s primary residence and which is thus protected by law from creditors’ claims) to his/her intended beneficiaries upon his death, while avoiding the probate process. Also, when the owner dies, his/her beneficiaries take the property at a stepped-up tax basis (at the value of the property on the day of the individual’s death), so if the property is sold shortly after the individual’s death, there should be no capital gains tax due the IRS.
However, traditional Life Estate Deeds have certain problems, including the grantor retaining only a life estate interest in his homestead; meaning, he or she cannot sell, encumber or otherwise transfer its ownership without the consent of his named beneficiaries. Also, the beneficiaries cannot claim the property as their own homestead, so it is vulnerable to their creditors’ claims (even while in the possession of the individual life tenant). Furthermore, the beneficiaries’ spouses may claim an interest in the property upon the beneficiaries’ death or in case of divorce.
Florida Enhanced Life Estate Deeds – Lady Bird Deeds
The Florida Enhanced Life Estate Deed is an invaluable alternative that provides the benefits of the traditional Life Estate Deed and, furthermore, allows an individual to retain control of his/her homestead during his/her lifetime. As such, with the Florida Enhanced Life Estate Deed, an individual can bypass probate, possibly avoid capital gains tax when the property is sold, protect it from claims of the beneficiaries’ creditors during his/her lifetime (except federal tax liens), and, most importantly, retain the authority to sell, mortgage, convey, gift or cancel the remainder interest in the property at any time prior to his death. If there is a property interest left upon the individual’s death, the remainder will pass to the named beneficiaries.
A lady bird deed reserves certain rights to the life tenant, including the right to sell and encumber the property without the joinder of the remaindermen.
An enhanced life estate deed may be a quitclaim deed or a warranty deed. When using a quitclaim deed, the grantor conveys the grantor’s interest in the property, but makes no representations regarding the grantor’s ownership of the interest being transferred. However, if the grantor wishes to warrant title to the property for any reason, the enhanced life estate deed can be a warranty deed.
Because few other states offer the privileges contained in the Florida Enhanced Life Estate Deed, it is advisable to talk with an experienced Florida Real Estate Lawyer when attempting to create a Florida Enhanced Life Estate Deed. Otherwise, you risk, among other things, losing homestead protection for your property, disqualification from Medicaid if you are later admitted to a nursing home, or surrendering your freedom to sell or otherwise encumber your property during your lifetime. Also, if your conveyance is deemed a “gift” in accordance with Federal tax law, the individual’s estate may be made to pay federal gift taxes.
What Should You Do?
If you are thinking about creating a lady bird deed, a good piece of advice is to speak with an experienced Florida real estate lawyer to learn more about these deeds, including the benefit of avoiding probate as well as issues related to Florida’s homestead exemption and documentary stamp taxes. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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