As you create your Estate Plan, you most likely are curious what options are available to you that may benefit you in your specific circumstances. You may be wondering what unique or slightly out of the box options might exist outside of your traditional Will or Trust-Based Estate Plan. It is common to want to look for the best options for you, especially if you are someone with a lot of assets to your name, including property. One option to consider is an Enhanced Life Estate Deed.
What is an enhanced life estate deed and an example?
An Enhanced Life Estate Deed, also commonly known as a Ladybird Deed, is a Quitclaim Deed that helps you transfer your property to another within your lifetime to make the transition after your death easier. Through an Enhanced Life Estate Deed, you are able to help your beneficiary skip probate court after your death, which is often a time-consuming and expensive process. An example of an Enhanced Life Estate Deed is when a parent leaves their property to their child within this deed, allowing them to skip probate court and have ownership transferred to their name after the death of their parent.
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How do enhanced life estate deeds work?
An Enhanced Life Estate Deed works by allowing the original owner of the property, known as the life tenant, to maintain full ownership of their property throughout their lifetime. This includes giving them the ability to both mortgage and sell the property without the beneficiary having a say over the decision. Once you pass away, the beneficiary, often referred to as the remainder beneficiary, is able to acquire ownership.
An Enhanced Life Estate Deed effectively gives the property away during the original owner's lifetime. It allows the beneficiaries to avoid probate court because the legally binding deed divides the ownership of the property into two parts: lifetime and future interests. During the owner’s lifetime, they retain ownership. However, once they pass away, the property enters into the future interests to which the remainder beneficiary holds ownership.
What is the purpose of an Enhanced Life Estate Deed?
The main purpose of an Enhanced Life Estate Deed is to avoid probate court. Going through probate court in order to pass on ownership of property is not only expensive, but it also entails accessing and filing numerous legal forms and waiting to receive a court order to transfer “clear title”. Once the court order is received, the county recorder’s office will have to issue a new deed in the beneficiary/heir’s name. This process can often take many months to complete.
Which States recognize Enhanced Life Estate Deeds?
It is important to note that not all states offer Enhanced Life Estate Deeds to their citizens. In fact, there are currently only five states that give this as an option to its residents: Florida, Michigan, Texas, Vermont, and West Virginia. If you are a resident in one of these five states, consider creating an Enhanced Life Estate Deed.
What are the advantages and disadvantages of Enhanced Life Estate Deeds?
Fully understanding both the advantages and disadvantages of having an Enhanced Life Estate Deed before making the decision, is important.
Skip Probate Court – The most notable advantage of an Enhanced Life Estate Deed is one we have already acknowledged, which is that it allows your beneficiary to bypass the probate court process in its entirety. This will save both time, money and energy, as probate court is expensive and time-consuming. This will also help you to leave more of your assets to your loved ones, as your remaining assets will not have to be used to pay costly probate court fees.
Medicaid Planning – Enhanced Life Estate Deeds are also particularly beneficial to those who received Medicaid benefits within their lifetime. Typically when your home goes through probate, the state will take out Medicaid Recovery, which could result in your home being claimed by the state. However, if you have an Enhanced Life Estate Deed, you can rest easy knowing your home will be protected from Medicaid Recovery.
Low Cost – Creating an Enhanced Life Estate Deed is a more inexpensive option compared to its counterpart option of creating a Living Trust. This will save you money that you could then leave to your loved ones in their inheritance.
Flexibility to Potential Changes – One of the main disadvantages of an Enhanced Life Estate Deed is that it is not often as flexible to unforeseen circumstances or desired changes in the future as other estate planning options. For example, if the remainder beneficiary was to pass away before the life tenant, it can be difficult to change out the remainder beneficiary. Additionally, if the life tenant changes their mind about the Enhanced Life Deed, it can be time-consuming to terminate the deed.
Not Widely Accepted – Because Enhanced Life Estate Deeds are not common throughout the country and observed by only a handful of states, it can cause confusion for banks involved with your mortgage to fully understand what an Enhanced Life Estate Deed is, as they may not have often worked with them. This can then create a frustrating situation for both parties.
Deciding how you want to transfer over the ownership of your property to your loved ones can be a time-consuming decision to make, as you will want to take care to think it through fully. Having to then create the plan on top of this can seem challenging. Trust and Will can help make the estate planning process easier with our state-specific online estate planning services. With Trust and Will, you can create your Will or a Trust all from the comfort of your home. Not sure where to begin? Start with our free online assessment to get pointed in the right direction. We also offer additional attorney support to those who may want it. Get started today!