Sometimes referred to as the Ladybird Deed, an Enhanced Life Estate Deed is a method of transferring real estate without probate. Upon the owner’s death, the property passes to the beneficiary named in the deed through operation of law, which means it does not invoke probate.
An Enhanced Life Estate Deed differs from the typical life estate deed as the property is transferred at death, not before. This means the owner or “life tenant” retains complete control over their property while alive. The life tenant can sell, mortgage, and profit off of their property without having to consult the beneficiary.
What Is An Enhanced Life Estate Deed?
An enhanced life estate deed is a method of transferring real estate to a beneficiary after your death. Sometimes called a “Lady Bird Deed,” enhanced life estate deeds provide a number of benefits that can make them preferable to a typical life estate deed. For individuals interested in maintaining property rights and Medicaid eligibility, while preventing their beneficiaries from paying excess fees, an enhanced life estate deed may be for you.
Distributing your property through an enhanced life estate deed can allow you to avoid probate. Probate is the legal process of the management of assets after the owner’s death. Probate ensures assets go to the correct inheritors and also ensures debts and taxes involved with the process are paid in full.
Enhanced life estate deeds allow you to avoid probate by naming a beneficiary that the property is being transferred to. This is beneficial because it allows the beneficiary to avoid court fees associated with probate as well as possibly letting you avoid estate tax.
Retain Property Rights
Using an enhanced life estate deed allows you to retain several property rights. With a typical life estate deed, you lose out on several rights when you name a beneficiary. For example, while you would still be allowed to live on the property, you would not have the right to mortgage or sell the property. In extreme cases where the value of the property greatly decreased while you still owned it, you could even be liable to your beneficiary.
Enhanced life estate deeds avoid these issues. Like typical life estate deeds, you can continue to live on your property but you retain various property rights. For example, with an enhanced life estate deed, you retain the right to sell the property at any point before your death and can continue to profit off of the property during your lifetime.
Avoid Gift Tax
Naming a beneficiary with an enhanced life estate deed allows you to avoid the gift tax. When you give someone property, the gift giver is responsible for paying a gift tax based on the worth of the property. However, this only applies when the giver is alive during the gift process.
Enhanced life estate deeds name a beneficiary before the property owner’s death, but retain ownership of the property during their lifetime. It is only upon the death of the property owner that the beneficiary receives ownership. Because the exchange of property happens after the original owner’s death, property received through enhanced life estate deeds are not subject to the gift tax.
Preserve Medicaid Eligibility
Enhanced life estate deeds allow property owners to retain eligibility for Medicaid. When applying for Medicaid, individuals have to report their assets to determine whether or not they are responsible for paying for their own medical care. One method of getting around this, is by giving away valuable assets to family members. This allows the individual to qualify for Medicaid while still retaining access to the assets they’ve given away. To counteract this, Medicaid applicants must disclose assets they’ve given away during a time period referred to as the “look-back” period.
Enhanced life estate deeds avoid this issue as the property remains in the original owner’s possession until death. Thus, enhanced life estate deeds do not need to be disclosed when applying for Medicaid. For states that don’t consider the value of your residence when applying for Medicaid, using an enhanced life estate deed keeps you eligible for Medicaid.
Avoid Medicaid Repayment
An enhanced life estate deed can help your family members avoid Medicaid repayment. In instances where an individual uses Medicaid, family members can be liable to repay Medicaid costs with the assets they inherited. However, in certain states, assets that did not go through probate are not applicable for this repayment process.
Enhanced life estate deeds prevent your inheritors from repaying Medicaid costs because the property did not go through probate.
An enhanced life estate deed is a simple way to transfer real estate while avoiding probate and preserving eligibility for Medicaid. This method is ideal for individuals who want to retain property rights for the remainder of their lifespan without being beholden to their beneficiaries.
For more information on enhanced life estate deeds, contact us today.
The benefits of Enhanced Life Estate Deeds include:
- Medicaid eligibility is not affected by an Enhanced Life Estate Deed because you still retain ownership of the property. Likewise, because you own the property you avoid Medicaid’s look-back rule.
- Medicaid’s right to estate recovery is diminished because in some cases, only properties that were exchanged with probate qualify to repay Medicaid expenses. This means the beneficiaries will not be at risk of having to sell the property to repay the expenses.
- The gift task is also avoided as the property is given in death, not life.
Understanding Enhanced Life Estate Deeds and how they work in your state can be a difficult process. For assistance and answers in establishing your Enhanced Life Estate Deed, contact us today.