An enhanced life estate deed is often called a Lady Bird Deed. This type of deed transfers ownership of real property to beneficiaries outside of probate – the court process of finalizing an estate.
(Technically, this type of deed is a term that describes a method of transferring real property by a warranty or quit-claim deed to a person or trust).
An enhanced life estate deed gives the deeded property away during the owner’s lifetime. The owner of the property makes a gift of it to their beneficiaries, but can continue living in the home until the time of their death. The property is transferred to beneficiary at the owner’s death.
(This type of deed is recognized in just five states: Florida, Michigan, Texas, Vermont, and West Virginia.)
The deed is an estate-planning instrument, transferring real estate to one or more beneficiaries during the owner’s lifetime without the necessity for probate at the time of the owner’s death (when the property actually transfers).
The owner of the real estate, referred to as the “life tenant,” retains control over the property while alive with an enhanced life estate deed. The life tenant has the right to mortgage or sell the real estate without the consent of their beneficiaries named in the deed because they haven’t actually given the home to them yet. The real estate doesn’t actually transfer until the life tenant’s death.
As of 2020, the property is considered to be a contribution to the homeowner’s estate which does become an inheritance to the beneficiaries. However, estates valued less than $11 million + are not subject to federal estate taxes. Homes are subject to a “stepped up” basis, though. Which means that the home’s property tax is uncapped and reassessed at the current market value which could cause a rise in taxes for the beneficiaries.
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Special thanks to Attorney Sonja M. Markwart for reviewing and ensuring accuracy of our post!