It’s My Property, I’ll Cry If I Want To
Are deed restrictions ruining your estate planning party? You want to protect your property but several restrictions might be getting in your way. You can’t sell without permission.You have to pay gift taxes. A lien could potentially be placed on the property. Tired of all these restrictions? Cut out these party-poopers! Instead, have your cake and eat it too with Lady Bird Deed. The Lady Bird Deed, or enhanced life estate deed, is a viable option for transferring property to your heirs, while at the same time holding onto your ownership in the property to your heirs, while at the same time holding onto your ownership in the property (a life estate) thereby keeping your right to sell property during your lifetime. Assuming you will own the property until you die, if during your lifetime you want to sell the property, you will not need to notify (or get the permission to sell) from your beneficiaries. Upon your death, the property automatically transfers to your heirs named on the deed, without having to go through probate.
There has been a lot of interest in my office surrounding deeds, in particular the “Lady Bird Deed”, as an extension to their estate planning. Everyone’s situation is different and we strongly encourage persons to consult with an attorney or real estate professional, before preparing any type of deed on your own. Check out the following information to give you an example of the advantages of the Lady Bird Deed versus the Life Estate Deed and Quite Claim Deed:
The Benefits of the Lady Bird Deed
AVOID PROBATE: Unlike a Will that requires to be probated, a Lady Bird Deed helps in conveying title without any probate at the time of the grantor’s death.
PROTECT FROM CREDITORS: It protects the property from the beneficiaries’ creditors during the grantor’s life-time. The creditors cannot place a lien on the property because the beneficiaries have no interest during the grantor’s lifetime.
NO CAPITAL GAINS TAX: The beneficiaries inherit property at a “stepped-up” basis, which is the value of the property on the day when the grantor passes away. If the beneficiary sells home, obviously there will be no capital gains and hence the grantee does not have to pay capital gains tax.
FLEXIBLE RIGHTS: The grantor is legally entitled to sell or transfer property as a gift any time he wishes to do so. He may also take out a mortgage on the property or cancel the remainder interest.
Lady Bird Deed vs. A Life Estate Deed
There are 2 ways in which an enhanced life estate (Lady Bird Deed) differ from a regular “Life Estate” deed:
PROPERTY SALE: Unlike a Lady Bird Deed that allows a grantor to sell property during his lifetime without the beneficiaries’ consent, a regular life estate deed is one that doesn’t allow ou to sell without permission.
GIFT TAX IMPLICATIONS: A regular life estate allows the grantor to keep a life estate and transfer a remainder interest (estate that remains the grantor’s death) to one who will inherit property. The current owner has the right to occupy and use property. He is entitled to get all the money that can come from his property. But as per IRS rules, the grantor may have to pay gift taxes for transferring the remainder interest. However, the grantor need not pay gift taxes if he uses a ladybird or enhanced life estate deed. This is so because the grantor has the unilateral right to cancel the remainder interest conveyed to the beneficiary.
In a regular Life Estate Deed, the owner of the property holds a life estate and continues to use the property during her lifetime. But she cannot sell or mortgage the property without the agreement and cooperation of the named beneficiaries. Whereas in Lady Bird Deed the owner keeps her sole right of selling (or mortgaging) the property, transferring it to any other person, or change the title without requiring consent or cooperation from the beneficiaries.
Lady Bird Deed vs. Quit Claim Deed
Unlike Lady Bird Deeds, a Quit Claim Deed with life estate language does not allow the grantor (owner) to sell, mortgage or transfer property without the consent and cooperation of the beneficiaries. The beneficiaries’ creditors can easily place a lien on the property. Moreover, if any beneficiary passes away or goes through divorce, her spouse can claim a share of interest in property. In some states, the Quit Claim or a Life Estate can even affect the validity of your homestead protection.
Using Lady Bird Deeds make sense if you wish to convey property to your heirs directly without the need for probate. In most cases, it may also not affect your Medicaid eligibility. This deed offers maximum benefit to your beneficiaries when they take over your property.
SCENARIO: My mother is a widow and wants to know if a Lady Bird Deed would protect her home from being sold to pay for a nursing home.
Your mother can protect her house being sold off by using the Lady Bird Deed. This type of deed helps the grantor (your mother) hold ownership of property throughout her lifetime with the right to sell it whenever she desires. The grantee (beneficiary) can only sell the property after the grantor’s death, without going through probate.
BY MAKING THE DEED:
- Ownership remains with the grantors
- The grantors retains the right to revoke the deed at any time and
- If the property is not sold during the lifetime of the grantors, then it passes on the named grantees without the need for a probate after the death of the last grantor.
There are many types of deeds to be used for many uses. There are many ways to protect your assets. A Lady Bird Deed may be just he option for you.
By Dedra Curtis
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