An enhanced life estate deed, also known as Lady Bird Deed, is a way to transfer property after death without having said property go through the probate process. This type of deed has its distinct advantages and certain disadvantages. To understand it, we must review what a life estate is – and how an enhanced life estate deed is different.
A life estate is an agreement wherein a person is granted use and ownership of a piece of land or property for their lifetime as a life tenant. A life estate can also be described as joint ownership between the life tenant and the remainderman.
The purpose of a life estate is to grant a close friend or loved one access to the property, provided the rights to the property eventually revert to the remainderman or their estate.
An enhanced life estate allows a property holder to transfer property to a named beneficiary while retaining certain rights to stated property, including the ability to sell their ownership to someone else or mortgage their property (which is not an option for remaindermen within a life estate), as well as other benefits.
The big difference, in this case, is that the property passes onto the named beneficiary after the owner dies. Thus, the beneficiary is the remainderman in an enhanced life estate, while the original owner becomes the life tenant.
How Does an Enhanced Life Estate Deed Work?
An enhanced life estate is a type of deed (or transfer of ownership document) naming a designated beneficiary for a piece of property. The beneficiary may own the property, but the owner retains rights to it until they die (at which point the beneficiary becomes the sole owner of the property).
The main purpose of an enhanced life estate deed is to allow a designated property to bypass probate via a direct distribution to a chosen beneficiary.
The probate process is a mandatory process wherein a local court oversees the evaluation and distribution of a deceased resident’s belongings, including their assets and properties. However, there are multiple reasons why a person might want certain properties to avoid probate.
- First, many states have a financial limit under which a probate process may be expedited, saving both time and money – directly distributing large properties and assets after death can help a decedent’s estate remain within that limit.
- Secondly, probate can require the cooperation of multiple state courts whenever a person’s properties transcend state lines. This takes time and money, again, as court fees and attorney fees may be effectively doubled. Ensuring that all out-of-state properties and assets are seamlessly transferred after death can help wrap the issue up.
Can an Enhanced Life Estate Deed Be Disputed?
One of the benefits of an enhanced life estate is that it avoids probate, and probate is often designed to be an avenue specifically for inheritance disputes. By bypassing probate, property in an enhanced life estate deed should bypass most disputes. However, there are reasons someone might try to dispute an enhanced deed. These include cases where:
- It isn’t clear who the beneficiary should be/there is any reason to believe the beneficiary hadn’t been correctly identified.
- It isn’t clear that the owner of the property actually owned it.
- There are disputes as to the value of the property.
- Insurance issues (some insurers may not want to cover property transferred through an enhanced deed, for some reason).
When drafted, witnessed, signed, and notarized correctly, an enhanced life estate acts as a simple contract between the owner (life tenant) and beneficiary (remainderman). There isn’t much room for disputes when everything is done the right way.
The biggest disadvantage to an enhanced life estate deed is that it is not available in most states. Instead, the most common way to transfer property without probate is through a transfer-on-death deed (i.e., passing property onto a designated beneficiary only after death).
There is no life tenancy in a transfer-on-death deed. Instead, the deed stipulates that the property goes to the beneficiary after the owner’s death (bypassing probate in the process). However, there are a few differences between using an enhanced life estate and a transfer-on-death deed in states where both are available.
In the case of a transfer-on-death deed, the property may be seized at death to repay Medicaid debts. On the other hand, an enhanced life estate can potentially save your home from government creditors. In cases where state governments assist the federal government in collecting Medicaid debt, some state programs only try to recoup benefits from probate estates.
The specifics become complex as they depend on state law. If you want to learn more about how you might protect your home from federal creditors, consider speaking with a local estate planning professional.
Finally, it must be noted that a home transferred through an enhanced life estate still counts towards the owner’s total estate value for estate tax purposes (despite skipping probate). The same is true for a transfer-on-death deed.
Seek Professional Legal Help
Is an enhanced life estate deed right for you? The truth is that it depends an awful lot on several factors and circumstances. These deeds are designed to limit some of the common complications related to asset transfer and probate. Still, distinct cons – such as enhanced life estate are incredibly limited throughout the United States. So far, only five states recognize these deeds:
- West Virginia
On the other hand, 27 states recognize the transfer-on-death deed as a means to transfer property after death without involving said property in a probate process. If you can take advantage of an enhanced life estate deed and are looking for an alternative way to transfer property after death, mention the idea to your estate planning attorney. Someone familiar with local law and your circumstances will be your best bet to help you with property transfers and estate planning.