What Is an Enhanced Life Estate Deed?
- A life estate deed with an enhanced design will transfer the ownership of property following the death of the owner without probate.
- The owner is in control over the property once the deed is signed and for the duration of their life in contrast to standard estate deeds.
- Life estate deeds that are enhanced were only recognized by five states in 2020.
- A life estate deed that is enhanced isn’t regarded as a transfer of property that could fall under Medicaid’s lookback period of five years since the property remains under the control of the owner.
Definition and Example of an Enhanced Life Estate Deed
A life estate deed with an enhanced design is an estate plan instrument that allows the transfer of real estate to a beneficiary throughout the lifetime of the owner. This eliminates the requirement to go through probate in the event the owner’s death. You could leave your house in trust to your teen child in this manner as you age in the knowledge that you won’t be going to move out. You will be able to reside there and keep control of the property until you die.
Note
A life estate deed that is enhanced is not to be misinterpreted as the traditional death estate document. It has distinct consequences.
A life estate deed that is enhanced is sometimes referred to as the “Lady Bird deed.” The Florida lawyer who invented this kind of deed in the 1980s, arbitrarily named it in honor of president Lyndon B. Johnson’s wife. There is no evidence to suggest that the President ever transferred assets into Lady Bird Johnson in this way.
This kind of deed is accepted in five states, as of the year 2022. Florida, Michigan, Texas, Vermont, and West Virginia.
How Does an Enhanced Life Estate Deed Work?
The first owner of the property, also known by the name of “life tenant,” retains the property’s rights throughout their life. The life tenant is granted the option of securing a mortgage or selling the property without the approval from their beneficiaries, or restmen mentioned on the title deed. They haven’t yet transferred the property to them as of yet. The property doesn’t necessarily pass until tenant dies.
Life Estate vs. Enhanced Life Estate Deed
A life estate deed can also transfer ownership of a property prior death, however the owner is not able to purchase or loan the property without the approval or “joiner” of their remaindermen. This kind of deed efficaciously allows the remaindermen to have the property at the present moment. The owner simply holds the title of a “life estate,” the right to live there until the time of death. “Joinder” means that these individuals are a party to any sale or mortgage.
The deed needs to be signed and prepared and filed with the land record office of the county as other deeds. A property that is transferred by one or both of the deeds will require probate in the event that the remaining beneficiaries pass away before the life tenant’s death.
| Life Estate Deed | Enhanced Life Estate Deed |
| Owners can live there for longer | Owners can live there for longer |
| The owner is not able to sell or loan the property without the permission from the beneficiaries | The owner can decide to sell or loan the property, but not with the approval of the beneficiary |
You might want to ask an estate planning lawyer to draft the deed in case you’re thinking of with one in the estate planning process. It is possible to create an ordinary life estate deed instead of a more improved life estate deed should you do make a mistake, and also if you reside in a place which recognizes both.
Life Estate vs. Transfer-on-Death Deeds
You may want to talk with an attorney about an alternative estate planning method if you do not reside in a state that have Lady Bird deeds. Transfer-on-death deeds function in a manner similar to enhanced life estate deeds. They do not take effect and don’t transfer assets to beneficiaries until death, however the language used in the deed should specifically mention the transfer date.
The property isn’t subject to the process of probate. It isn’t part of the probate estate due to a procedure–the deed is already there to allow the transfer of ownership by the owner of the property who died into one of the living beneficiaries. Over half of all states have recognized deeds of transfer on death in their statutes by 2020:
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- District of Columbia
- Hawaii
- Illinois
- Indiana
- Kansas
- Maine
- Minnesota
- Mississippi
- Missouri
- Mountain
- Nebraska
- Snowfall
- New Mexico
- North Dakota
- Ohio
- Oklahoma
- Oregon
- South Dakota
- Texas
- Utah
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
| Enhanced Life Estate Deed | Transfer-on-Death Deed |
| Five states recognize it as a valid state | It is recognized in 27 states. |
| Transfers property upon death, and prevents the probate | Transfers property upon death, and prevents the need for probate |
| Owner is still in control of the property while alive | The owner retains control even if they are alive |
| Not affected by Medicaid “lookback” rules | It is possible to seize property upon the time of death in order to pay Medicaid |
It is possible to revoke a death-related transfer deed in order to transfer the property back. A typical deed will require the creation of a new deed issued to supersede the original one.
The Effect on Medicaid
The government has imposed the five-year “lookback” period on Medicaid eligibility should the time be required for long-term health care and you are able to are eligible for the benefits. This means that you aren’t able to transfer the ownership of your properties within the five-year period after submitting the application. A few individuals have made this the hope of “spend down” their assets in order to qualify to receive Medicaid aid that is based on needs.
Note
Medicaid will require you to use funds from your personal assets in order to fund healthcare before you are admissible to benefits. It is not unusual home owners to try in the hope of transferring their home to their children to prevent this, hence it’s the “lookback” rule.
The amount of Medicaid eligibility is determined by the worth of assets you have when you apply. The less you have, the better. A lot of people think they can give assets away prior to applying for a loan for a tax exemption, but this isn’t actually the reality. The assets you give away over this time frame can be “pulled back” into the worth of your estate for tax-exempt purposes.
A redesigned life estate deed technically does not be considered an transfer. You remain in control of the property. That control doesn’t transfer until your death. It’s not the norm for transfer-on-death acts, but it is contingent on the the law of your state.
Your home may be deemed to be a viable choice for paying to repay your Medicaid benefits upon your the passing of your loved ones, however. Federal law requires that every state has the “estate recovery program” in the process of recovering benefits, but certain states only accept benefits inheritances from probate estates. Your home would not be affected in this scenario in the event that you transfer it through a Lady Bird deed. In the event that you don’t, your beneficiaries could be forced to sell your home.
Do I Need to Pay Estate Tax?
A property that is transferred through the Lady Bird deed can contribute to the value of the estate of the homeowner to be used for estate tax purposes. The property is considered an inheritance that is granted to your remaining beneficiaries. Only estates that have values in more than $12.06 millions are subject estate tax in the federal government as of the year 2022.
Note
There is no gift tax in this manner of transferring property as you’re giving the property upon the time of your death, not your life.
A few States also contain estate tax However, they are not all equal. Certain thresholds for exemption are significantly smaller.
Your beneficiaries will be granted your beneficiaries will receive a “stepped up” basis for purposes of any capital gains tax that could be due in the event that they decide to sell the real estate following your death. The basis for the property is the value it had at the time you die and not the value when you acquired it initially, like in the event that it was transferred to them in your time of life. This can result in a substantial tax savings.
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