Life Estate Deeds

[frayne]

Has anyone here done or have experience doing a "Life Estate Deed? " Basically it is a document that is required to be filed with in order to pass property on to an heir so the property doesn't have to go through the probate process when the owner passes away. I believe all states have different requirements and there are pros as well as cons to doing one, just curious if anyone here has any experience or comments on the subject, good or bad. Thanks in advance.

 

[Jerry1]

It worked for me. My dad and his wife filed a beneficiary deed in their county. The deed was to claim the Trust as the beneficiary of the house upon death. All we had to do was take the death certificates to the county and they changed the title on the house to the trust. I think there was a small filing fee at the county. In less than two days, the new name showed up on the county website. Transfer complete.

 

[DrRoy]

We have a Quit Claim deed in Michigan that will pass the house directly to the other spouse with no probate.

 

[aja8888]

Texas has a "Transfer on Death Deed" (TOD) process which I have executed and recorded in our county records for my daughter. No probate required. As a matter of fact, I have set up my whole death estate plan for her to execute without going through probate.

Im can revoke the TOD at any time if I wish to change it or sell the house.

 

[calmloki]

So does a TOD deed transfer at the stepped up basis for value at time of transfer?

 

[aja8888]

So does a TOD deed transfer at the stepped up basis for value at time of transfer?

I'm not sure.

 

[frayne]

So does a TOD deed transfer at the stepped up basis for value at time of transfer?

I have been told that it does.

 

[Flyfish1]

Our home is in a Trust which also avoids probate.

 

[Sojourner]

Our home is in a Trust which also avoids probate.

+1

AFAIK, only certain states have mechanisms that allow real estate to be transferred to heirs outside the normal probate process (with the exception of trusts, which work in every state).

 

[Jerry1]

So does a TOD deed transfer at the stepped up basis for value at time of transfer?

I have been told that it does.

My estate lawyer in Michigan and the lawyer in Missouri both said that the basis is stepped up. We're working on an appraisal of Dad's house to establish the basis upon his death.

 

[CaliKid]

A life estate deed and or transfer on death deed are likely different so I'd talk to an attorney in your state.

The transfer on death can be an ok option in very simple cases but, in my opinion, the trust is far superior. I have seen TODs utilized for modest homes when a person is on their death bed. It's easier to set up than a trust so can literally be done the same day but a trust is far superior in most cases.

The person above that mentioned a quitclaim from spouse to spouse should realize that just takes one person off the deed. As long as you know who will die first that's ok for now but what if the other spouse dies first? Also, you likely have worse tax treatment (i.e. regarding step up in basis) with a quitclaim during life so that's typically not recommended. Perhaps you meant a joint tenancy deed which is ok but not perfect for a variety of reasons.

With all the above the trust is superior as you have to remember these deeds are for death planning. What happens if some action is needed while you are alive!? A living trust will allow a trusted person to sell your house, re-fi your house, rent your house out, etc... when you are alive but incapable of doing such things. People trying to save a few bucks in attorney fees by not doing a trust are likely costing someone a lot of money later on if things do not go exactly as you plan it.

Hire an experienced estate attorney and get it done right.

 

[OldShooter]

... Hire an experienced estate attorney and get it done right.

+1 I understand that many of us (including me) are here because we have strong cheapskate genes. That is often an important factor in FI. But in almost all cases, estate planning is not the place to go cheap or DIY. One important reason is that there are no do-overs. Mistakes, unanticipated changes in families and relationships, etc. cannot be dealt with because ... you are dead. The documents, standing alone, must get it right.

One thing we have done is to have an estate attorney who is quite a bit younger and a good friend of DW, who was a megabank trust department SVP herself. Estate attorney Barbara knows our biases and intents in far more detail than what is in the documents and, to the extent possible, she will make sure that things happen correctly.

 

[Sunset]

+1

AFAIK, only certain states have mechanisms that allow real estate to be transferred to heirs outside the normal probate process (with the exception of trusts, which work in every state).

We had a lawyer inform us that IL for ~ 12 years now, has the TOD/POD transfer for deeds of houses.

No longer a need to use the common in IL thing referred to as: IL Land Trust (which has annual fees).

Of course a Joint owned house only needs any of that for the second death..

 

[frayne]

When it comes to hiring an estate attorney, I agree with the idea in principle, especially for larger estates with potential contingencies to address. However, for smaller estates with only one heir and assets totaling $2 million, where $1.5 million is already designated to a beneficiary without the need for a trust or will, it may be practical to handle the remaining property and vehicles similarly to minimize probate time and costs.

Each person's situation is unique, and not everyone necessarily requires a trust. It's common for estate attorneys to recommend trust instruments, often because it's their primary area of expertise. However, trusts involve initial costs as well as ongoing maintenance and administration expenses, whether fixed fees or a percentage of assets. Additionally, the legal landscape varies by state, with different regulations regarding Transfer on Death (TOD), Life Estate Deed, etc.

In my case, I've already consulted with a title attorney and am awaiting feedback from an estate attorney to ensure all details are carefully addressed. As someone who prefers a do-it-yourself approach to financial matters, I believe that with proper pre-planning, a similar strategy can be applied to end-of-life issues, making things easier for surviving loved ones.

Engaging with this group and gathering responses is part of my due diligence and ongoing education on this subject, and I appreciate everyone's comments.

 

[OldShooter]

The wrinkle that must be dealt with in most of these TOD and similar schemes is "What happens if the designated recipient of the asset predeceases the grantor or the recipient and the grantor perish in a common disaster?"

 

[aja8888]

The wrinkle that must be dealt with in most of these TOD and similar schemes is "What happens if the designated recipient of the asset predeceases the grantor or the recipient and the grantor perish in a common disaster."

In my Texas case where I have a TOD and my only daughter is the recipient (I am a widower), if she dies before me, I can cancel or modify the TOD. It's clearly spelled out in the instructions.

Actually, I can cancel the TOD at any time I feel necessary.

If we both die at the same time, the contingent beneficiary I have named will get the asset (nephew).

Putting my house in a trust here in Texas means I will lose my homestead and over 65 age property tax exemptions and the trust would have to pay those being the new owner.

As Fayne said above, in a simple estate, like mine, with one beneficiary getting the whole pot, a trust makes little sense.

For the high rollers with large estates and scads of kids/grandkids, and maybe some other folks in the line at the feeding trough, a trust maybe is the correct way to go.

 

[cathy63]

Has anyone here done or have experience doing a "Life Estate Deed? " Basically it is a document that is required to be filed with in order to pass property on to an heir so the property doesn't have to go through the probate process when the owner passes away. I believe all states have different requirements and there are pros as well as cons to doing one, just curious if anyone here has any experience or comments on the subject, good or bad. Thanks in advance.

Life Estates have been around a long time. They've traditionally been used for cases when a parent wants to pass the house to their children from the first marriage but allow the second spouse to live out their life in the property; but I think they can also be used to avoid the Medicaid look-back. The ultimate heirs are called the remaindermen.

The life tenant is responsible for maintaining the property, paying property tax, etc; and can also rent out the property and keep the rent as income. However, if the life tenant doesn't live up to their responsibilities, there isn't much the remaindermen can do other than to go ahead and pay the costs and then sue the life tenant to recover the funds.

The property gets a step-up in basis on the death of the first owner. If the life tenant then lives a long time, the property may be worth much more by the time the remaindermen finally take possession, and they'll end up with income and capital gains when they sell.

 

[pb4uski]

Has anyone here done or have experience doing a "Life Estate Deed? " Basically it is a document that is required to be filed with in order to pass property on to an heir so the property doesn't have to go through the probate process when the owner passes away. I believe all states have different requirements and there are pros as well as cons to doing one, just curious if anyone here has any experience or comments on the subject, good or bad. Thanks in advance.

Yes, both our properties are enhanced life estate deeds aka Lady Bird deeds with our kids named as remainderman. As long as one or the other of us is living we have the right to use the properties, rent them or sell them and keep the proceeds... all the usual rights of ownership, and then when the second of us dies then the kids get the properties without having to go through probate.

In effect like a beneficiary designation on a financial account.

Vermont and Florida and a few other states allow them and it gets stepped up basis too.

 

[jim584672]

Life Estate Deeds in NY are used to pass a house outside of Probate and avoid any Medicaid claw backs.