Keeping your home out of probate: Transfer on death deeds and Enhanced Life Estate deeds

What is a transfer on death deed?

A transfer on death deed, also known as a death on transfer deed, is a legal document that allows a property owner to designate one or more beneficiaries to receive ownership of the property upon the owner's death. This type of deed is a non-probate transfer, which means that it does not go through the probate process.

In states that allow death on transfer deeds, the property owner signs and records the deed with the county recorder's office where the property is located. The deed does not transfer ownership of the property until the owner's death, at which point the designated beneficiary or beneficiaries automatically become the new owner(s) of the property without the need for probate.

Currently, about half of the states in the U.S. have laws allowing death on transfer deeds. The states that currently have laws allowing transfer on death deeds include: Arizona, Arkansas, California, Colorado, District of Columbia, Hawaii, Illinois, Indiana, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Utah, Virginia, West Virginia, and Wisconsin.

What is an enhanced life estate deed and how does it work?

An Enhanced Life Estate Deed, also known as a Lady Bird deed or an enhanced remainder deed, is a legal document that allows a property owner to retain control of their property during their lifetime and transfer ownership to a designated beneficiary upon their death without the need for probate.

With a Lady Bird Deed, the property owner retains the right to sell or mortgage the property during their lifetime, but they also can change their designated beneficiary at any time. The beneficiary does not have any ownership rights until the property owner passes away.

The Lady Bird Deed gets its name from former U.S. President Lyndon B. Johnson, who purportedly used this type of deed to transfer property to his wife, Lady Bird Johnson, while he was still alive.

The Lady Bird Deed is like a traditional life estate deed, but it has a unique feature that allows the property owner to retain control of the property and transfer ownership to the designated beneficiary upon their death without the need for probate. This can save time and money for the beneficiary and can avoid potential legal issues that can arise during the probate process.

Lady Bird Deeds are only recognized in a handful of states, - Florida, Michigan, Texas, West Virginia and Vermont, so it’s important to consult with an attorney who is familiar with estate planning in your state to determine if a Lady Bird Deed is a suitable option for your estate planning needs.

What are the benefits of these types of deeds?

An Enhanced Life Estate Deed or a Transfer on Death Deed can offer several benefits for property owners and their designated beneficiaries.

Avoiding probate: The primary benefit of an Enhanced Life Estate or Transfer on Death Deed is that it allows the property to transfer ownership to the designated beneficiary upon the owner's death without the need for probate. This can save time and money and can also help to avoid potential legal issues that can arise during the probate process.

1. Retaining control: With these types of deeds, the property owner retains control of the property during their lifetime. They can continue to live on or use the property, sell, or mortgage the property, or change the designated beneficiary at any time.

2. Protecting Medicaid eligibility: An Enhanced Life Estate Deed can also help protect Medicaid eligibility for the property owner. By transferring ownership of the property to a designated beneficiary upon their death, the property will not be subject to estate recovery by the state for Medicaid benefits received by the owner during their lifetime.

3. Minimizing taxes: An Enhanced Life Estate or Transfer on Death Deed can also help minimize taxes that may be owed on the property. Since the transfer of ownership occurs at the time of the owner's death, the basis for the property is "stepped-up" to the fair market value at the time of death, potentially reducing capital gains taxes that would be owed if the property was sold by the beneficiary.

4. Avoiding disputes among family members: By designating a beneficiary for the property during their lifetime, the owner can help to avoid potential disputes among heirs or beneficiaries during the probate process.

5. Privacy: Since these deeds do not require probate, the transfer of ownership can remain private and does not become a matter of public record.

6. Flexibility: A Transfer on Death or Enhanced Life Estate Deed can be revoked or amended by the property owner at any time prior to their death, providing flexibility in estate planning.

It's important to consult with an attorney who is familiar with estate planning in your state to determine if an Enhanced Life Estate or Transfer on Death Deed is a suitable option for your estate planning needs. Powe Legal Services is very familiar with estate planning including ways to keep your property out of probate and can advise your best options. Schedule your consultation call today!