How an Enhanced Life Estate Deed Can Help You Avoid Probate
Many people worry about what will happen to their home after they pass away, specifically how to transfer it to their loved ones without a lengthy and expensive court process. Planning for the future of your property and assets is a significant step toward securing your family's financial well-being.
For homeowners, seeking guidance from a knowledgeable estate planning attorney is a wise move. Based in Redlands, California, The Elder & Disability Law Firm, APC, provides dedicated legal support with a focus on hands-on assistance. The firm helps clients understand their options, such as establishing enhanced life estate deeds, to make informed decisions that protect their legacy.
An enhanced life estate deed, sometimes called a "lady bird deed," offers a unique way to manage your real estate. It allows homeowners to retain control over their property during their lifetime while automatically designating who will inherit it upon death. This tool can be a valuable part of a comprehensive estate plan, helping families avoid probate.
What Is a Life Estate?
A life estate is a form of co-ownership of property. It divides ownership between two parties: the "life tenant" and the "remainderman." The life tenant is the person who holds the right to live in and use the property for the duration of their life. For example, a parent could name themselves the life tenant of their home. The remainderman is the person (or people) who will inherit the property automatically upon the death of the life tenant. This could be a child, another relative, or a friend.
In a standard life estate, the life tenant's rights are limited. They cannot sell, mortgage, or otherwise transfer the property without the consent and cooperation of the remainderman. While the life tenant is responsible for maintenance and property taxes, they have lost significant control over the property. This lack of flexibility can become a problem if the life tenant's financial or personal situation changes.
The "Enhanced" Advantage: More Control and Flexibility
An enhanced life estate deed gives the life tenant much greater power and flexibility. Like a traditional life estate, it names a remainderman who will inherit the property outside of probate. However, the key difference is that the life tenant retains the full right to manage the property without needing the remainderman's permission. With an enhanced life estate deed, the life tenant can:
Sell the property: If you are the life tenant, you can sell the property at any time and keep all the proceeds. The remainderman has no claim to the property or the money.
Mortgage the property: You can take out a mortgage or a home equity loan on the property without the remainderman's signature.
Change the remainderman: You can change your mind about who inherits the property. You have the power to amend the deed and name a different person as the remainderman.
Cancel the deed: If your plans change completely, you can revoke the deed altogether.
This level of control makes the enhanced life estate deed a popular choice for property owners who want the probate-avoidance benefit of a life estate without giving up their rights to the property during their lifetime. The property only transfers to the remainderman if the life tenant still owns it at the time of their death.
How an Enhanced Life Estate Deed Can Help You Avoid Probate
One of the primary reasons people use an enhanced life estate deed is to avoid probate. Probate is the court-supervised process of distributing a deceased person's assets. In California, probate can be time-consuming, public, and expensive. Attorney fees and court costs can also reduce the value of the estate that is ultimately passed on to heirs.
When you use an enhanced life estate deed, the transfer of your property to the remainderman named in the deed happens automatically upon your death. Since the property is not considered part of your probate estate, it does not have to go through the court system. Your beneficiary simply needs to record your death certificate in the county land records to clear the title. This process is much faster, more private, and less costly than probate.
Enhanced Life Estate Deeds vs. Revocable Transfer on Death Deeds
California is one of the few states that recognizes a legal tool similar in function to the enhanced life estate deed, known as a revocable transfer on death (TOD) Deed. California Probate Code § 5600-5696 authorizes this specific type of deed for certain residential properties.
A revocable TOD deed allows a property owner to name a beneficiary who will inherit the property upon the owner's death, without going through probate. Just like an enhanced life estate deed, the owner retains full control of the property during their lifetime. They can sell it, refinance it, or revoke the TOD deed at any time.
However, for a revocable TOD deed to be valid in California, it must be signed by the property owner, dated, and notarized. It also must be recorded with the county recorder's office within 60 days of being signed. These strict rules are in place to prevent fraud and confusion. Failing to follow them can invalidate the deed, potentially forcing the property into probate.
Other Benefits of Enhanced Life Estate Deeds
Beyond avoiding probate, an enhanced life estate deed or a revocable TOD deed offers other potential advantages, including a reduced Medi-Cal estate recovery. Many seniors are concerned about the cost of long-term care and its impact on their eligibility for Medi-Cal benefits (California's Medicaid program).
When you apply for Medi-Cal to help cover long-term care costs, your assets are reviewed to determine eligibility. With a revocable TOD deed, the property remains your asset during your lifetime, so its value is still counted for estate tax purposes.
However, after your death, Medi-Cal may attempt to recover the costs it paid for your care from your estate. Since a property transferred via a TOD deed is not part of your probate estate, it may be protected from Medi-Cal estate recovery. The rules on this are specific, so it's recommended that you obtain legal advice tailored to your situation.
An enhanced life estate deed can also offer certain tax advantages. For the remainderman, the property receives a "step-up in basis" to its fair market value at the time of the life tenant's death. This means if the beneficiary decides to sell the property shortly after inheriting it, they will likely pay little to no capital gains tax.
Contact an Estate Planning Attorney Serving Redlands, California, Today
The Elder & Disability Law Firm, APC, strives to design estate plans that can help you avoid probate, reduce estate taxes, and qualify for other benefits. Many clients, whether planning for themselves or for aging parents, are worried about the future and how things will work out. Attorney Esther C. Wang is dedicated to providing the legal knowledge you and your family need to build a solid plan.
By preparing for the future and documenting your wishes, you can make things much smoother for your family down the road. The Elder & Disability Law Firm, APC, located in Redlands, California, is dedicated to protecting your property, your family, and your independence, easing your worries about long-term healthcare and how your assets will be handled after you are gone. Reach out today for a consultation.