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I’M THE OWNER OF one-sixth of a house in Sarasota County, Florida. There was no cost to me to acquire it. I also don’t have to make payments for property taxes, maintenance, the mortgage or the homeowners’ association. And, no, I haven’t had a change of heart about investing in rental real estate and, no, the property isn’t part of some passive micro-investment syndication scheme.
Rather, my mother signed a life estate deed, also known as a quitclaim deed, which means her beneficiaries will eventually receive her home without going through the court-supervised transfer of estate property known as probate.
My father passed away in 2013. My mother, now age 88, began exhibiting early stage dementia five years later. At that time, we met with an eldercare lawyer to review her estate plan. We updated her will, assigned power of attorney to her oldest child and formalized her “do not resuscitate-do not intubate” wishes.
The lawyer also suggested we take steps to shield the passing of her primary residence to her children from review by the probate court. The deed for her home now has an accompanying attachment, commonly referred to as a retained life estate deed. My mother retains full control over the house, including the right to live within, sell, lease and mortgage her home.
But thanks to the life estate deed, there are now multiple parties assigned to the property deed. The legal document involved is akin to what’s sometimes known as a Lady Bird deed, named after President Lyndon Johnson’s action to transfer property without probate to his wife, Lady Bird Johnson, upon his death.
Our deed divides my mother’s ownership of the house. She retains 50% possession and full control. The remaining 50% is divided equally among her three children. Thus, I was assigned a 16.7% stake in a lovely, three-bedroom ranch-style home in a relatively high-cost-of-living gated community.
In practice, there were few changes. The Sarasota County comptroller now lists my siblings and me on the property’s deed as title holders, alongside my mother, who is termed the “grantor.” The county’s property appraiser, as well as the tax collector’s office, also have our names listed as individuals of record. This means, I assume, that we’re now all responsible for taxes and assessments if my mother fails to pay them.
In essence, my mother was able to give her primary residence to her beneficiaries during her lifetime, while retaining full use and control over the property. There are additional benefits to her surviving beneficiaries, who are heartlessly referred to in the legal document as “remaindermen.” The property is typically given a step-up in cost basis for tax purposes to match its current market value at the time of the main tenant’s death. The deed paperwork also eliminates the requirement to list specific names to inherit the property within the grantor’s will. In addition, a quitclaim deed may be useful for those hoping to have Medicaid pay for their long-term care, but that wasn’t part of our motivation.
Importantly, the value of the property is not subject to gift taxes—or, at least, not currently in Florida. Be sure to check the rules in your state. Five states currently allow a Lady Bird deed: Florida, Texas, Michigan, Vermont and West Virginia.
The changes affected only how ownership is represented in paperwork. The outstanding mortgage paperwork didn’t change. Insurance, homeowner fees, power providers, internet and garbage collection service remain solely listed under my mother’s name.
While this is not a particularly difficult legal undertaking, it’s certainly not for the faint of heart. As mentioned, all parties now bear responsibility for legal issues regarding the residence. This includes all taxes and liens against the property. Also, the deed itself is difficult to reverse if, for example, a grantor later wants to disinherit a particular child. In addition, the original owner or owners may open themselves up to debt collections against a well-to-do remainderman.
I found the major hurdle was that it forced us siblings to confront our mother’s mortality. When it comes to health issues, my siblings and I resemble the three bears. One always thinks the porridge is too hot, one too cold and one just right. One sibling was able to look death in the eye, one adopted a head-in-the-sand attitude and one was practical about the matter. I could leave readers to decide which of the three bears I resembled. But the truth is, I oscillated between all three points of view.
There’s a need for strong family trust to take advantage of this transfer of generational wealth. Overall, the life estate deed was a good option for our tightly knit clan, since we’ve always been open and trusting of each other, and somewhat knowledgeable about our parents’ finances and final wishes. Your mileage may vary.
Jeffrey K. Actor, PhD, was a professor at a major medical school in Houston for more than 25 years, serving as an academic researcher with interests in how immune responses function to fight pathogenic diseases. Jeff’s retirement goals are to write short science fiction stories, volunteer in the community and spend time in his garden. Check out his earlier articles.
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You didn’t have good counsel since you were left with the impression that a life estate deed is the same as a quit claim (your life estate deed was probably done as a quit claim, but they are two different things). I hope you were counseled on the disadvantages of what you did as well as any advantage. What do you do after she dies and one sibling wants to live there, one wants to rent it out, and the other wants to sell? I’m not convinced you got any thing other than a big legal bill. PS Losing the step up in basis on your share is one reason this option is often not the best choice. However, maybe there are peculiarities to FL law that are relevant.
You are correct in that there are upsides and downsides to these transactions. Ours was a Quit Claim. My siblings and I are on the same page about ownership and occupancy after my mother passes.
I tend to be a bit slow when it comes to estate planning issues, as I find them quite confusing. But we put our home into our trust, which will then go into our daughter’s trust when we both pass. I don’t really understand the difference between what you did and what we did. I mean, I understand the difference, but the advantages/disadvantages look pretty identical, and getting the house retitled under our trust was easy.
Great question! I am not 100% sure, but I bet the difference is due to who retains the primary decision making processes (such as in the case of selling the home). Perhaps there are state specific differences to the two mechanisms as well. I think we need a HD lawyer to weigh in on this answer.
Jeff – Just curious if this title change has affected the real estate tax situation. If your Mom has owned the house for a number of years her assessed ‘Save Our Homes’ valuation for tax purposes is most likely way below current value. New buyers in FL are often surprised to find their local county tax bill becomes based on the purchase value resulting in taxes 3,4,or even 5+ times what the previously titled owner paid.
Interesting. No, there was no unexpected change. Only the normal increases year to year.
This is all Greek to me. We were advised to put our vacation home in a trust with our four children as beneficiaries. I hope we have accomplished some simplification.
Jeff, thanks for an interesting article. My state – NJ does not allow for Lady Bird deeds but does recognize Life Estate Deeds. The downside is this deed removes control from the grantor. Do you think it makes sene to wait until one spouse dies and create the life state for the surviving spouse? I expect my wife to outlive me and at that time I would expect our sons would get involved in helping her manage her finances.
I imagine each family has uniques circumstances. In our case, we made the change a few years after my father passed away. The lawyer who helped us revise my mother’s will noticed complications with an existing trust. This was the impetus that started our chain of events that led us down the Life Estate deed path.
In Ohio we can use a TOD Affidavit in order to avoid probate. (The Transfer on Death Designation Affidavit (TOD), when properly recorded, permits the direct transfer of the described real property to the designated beneficiary or beneficiaries upon the death of the owner, thus avoiding Probate administration).
My concern is that the more bene’s named, the more potential for conflicts after I croak.
Thank you Dan,
I’m in Colorado and my youngest son and his wife took steps to initiate the TOD for his moms home.
They did the research to find out about the laws in this matter and she agreed to sign everything so both of my sons are on the papers.
At the time the X wife had a questionable boy friend and my son wanted a way to stop him from putting a claim on her home if she dies. That’s something they don’t worry about now.
My mother also has a “Lady Bird” deed. Along with PODs/TODs on financial accounts, I think this will make estate settling simpler and less expensive. This approach is not for every family, perhaps, but it strikes me as a good route for many.
Ed, A little bit of pre-planning can hopefully make it easier, simpler, and less stressful on those left behind. We were fortunate that our parents shared their estate distribution wishes with us when they were healthy.
We moved to Michigan three years ago from PA. We bought our condo from a lady who inherited it from her mom via a lady bird deed. When we completed our will, we discussed the lady bird deed as part of our estate planning and had our property title restated to reflect this feature so our sons would inherit without probate. This allows for a quicker and cheaper sale after we are gone.
Harold, sounds like the decision you made was a good one for your situation, just like it was for our family!
I view these elaborate legal strategies with trepidation – if something goes wrong, the lawyers will be raking in the money.
I think it makes much more sense to inherit the property through a will, go through probate court, and pay the fees. In most states, this is not particularly burdensome.
Or putting title into a revocable/living trust, which also avoids probate.
Thanks for your viewpoint. In our case, there is a particularly complicated portion of their will (and wishes) to eventually deal with when my mother passes. Moving the house into a non-probate category means that there is one less headache to deal with. So, it made sense, at least emotionally, for our family to do this.