What is an enhanced life estate deed?
An enhanced life estate deed is also known as a “Lady Bird Deed” named after Lyndon B. Johnson’s wife. This kind of deed is recognized in Florida, Texas, West Virginia, Michigan, and Vermont. The initial owner of the real estate is the life tenant and has control over the property during their lifetime, with the right to sell the property without the consent of the beneficiaries or remaindermen. The property automatically transfers to the remainderman upon the death of the life tenant.
Who can be a party to an advanced life estate?
The life tenant of an enhanced life estate must be a person rather than an entity, such as an LLC, partnership, or corporation, in order to be valid. The transfer of property in a life estate and an enhanced life estate is triggered upon the death of the life tenant, effectuating probate avoidance. The reasoning behind an entity’s inability to have a life estate in property is because an entity does not “die” as a human would. It has the potential of existing perpetually. Thus, deeding a life estate to an entity defeats the purpose of the “life” estate, resulting in the possibility of no transfer of property to the remainderman. Entities, however, are fully able to have interest in property as a remainderman.
What are the benefits of an enhanced life estate deed?
Enhanced life estates are popular as they give the life tenant more freedom than a typical life estate. An enhanced life estate differs from a typical life estate due to its ability to sell or transfer the property. An enhanced life estate will pass automatically to the beneficiaries and avoid probate, which can oftentimes be a long and expensive process. Furthermore, the enhanced life estate deed will allow the beneficiaries to receive a step up in basis of the property’s value, meaning that when they decide to sell– they will only be required to pay capital gains taxes based on the value of the property upon the decedent’s death, and not the value of the property when the decedent originally purchased it. An enhanced life estate deed does not affect the Florida homestead exemption, and property deeded into this type of estate can remain the life tenant’s homestead.
What are the disadvantages of an enhanced life estate?
There is not a Florida statute governing enhanced life estates which can lead to some uncertainty in their laws and regulations. Therefore, the deed language to create an enhanced life estate must be carefully written to achieve its intended purpose. Additionally, there can be issues with title insurance. Title insurers are selective about the enhanced life estates they are willing to insure. Finally, there can be tax consequences from this kind of estate such as a gift tax, estate tax, or documentary taxes.
