JACKSONVILLE, Fla. — Your house might be your single most valuable financial asset. So you want to make sure you can give it to those you love when you die, without giving up the farm.
That can be tricky.
“If it’s not done properly it can lead to unpleasant and undesired consequences,” real estate attorney Zach Roth at Ansbacher Law said while discussing estate planning strategies.
One strategy that’s available in Florida, and only a handful of other states, is called an enhanced life estate.
“It basically says when I pass away, you receive the property,” Roth hypothesized, “but until that moment, I reserve all rights to do whatever I want with it.”
That contrasts with what’s considered a traditional life estate, by which a property owner can plan for one or more others to inherit their house.
“The issue with the life estate is, generally speaking […] that the person holding the life estate has a lot less control over what happens moving forward,” Roth explained.
That includes potentially being thwarted by the very person you’re tapping to receive your property at your death, in the event you decide you no longer want the house while you’re still alive.
“The problem is, now you want to sell the property. They are a co-owner," Roth stated. "They can say, 'No," and there’s nothing you can do about that.”
So, it’s a matter of maintaining options and control, but it doesn’t stop there.
Enhanced life estates – nicknamed “Lady Bird” deeds for former First Lady, Lady Bird Johnson, though stories differ about exactly why – are also about protecting property and its eventual recipient from creditors after the death of the owner.
Examples of creditors can even include Medicaid, which often seeks reimbursement of benefits after the death of a participant. Although the Lady Bird deed has nothing to do with qualifying for Medicaid, it can be a layer of protection against the potential liability.
“That’s the benefit of avoiding probate. Medicaid or any other creditor – unsecured creditor – may become a creditor in that probate,” Roth detailed, also clarifying that a Lady Bird deed supersedes a will.
However, there are downsides to the Lady Bird deed.
“To me the biggest drawback is if you change your mind," Roth said. "You have to now record another deed in the public record to remove that. And every deed that you record creates one item that could go wrong. "
However, that can be true of any change made in hope of overriding an earlier estate decision, and Lady Bird deeds are fairly straightforward.
“They’re not the most complicated thing that [real estate lawyers] work on, but if you don’t know what you’re doing it’s easy to make a mistake,” Roth said.
In other words, it’s best left to an expert to arrange.
The good news, Roth said, is that Lady Bird deeds are fairly inexpensive to set up – typically a few hundred dollars – and can protect tens or even hundreds of thousands of dollars of inheritance for beneficiaries.
Furthermore, a competent lawyer should be insured against errors.
“If you did it yourself you’re out of luck,” Roth asserted. “If an attorney did it, maybe you may not get the property, but maybe you have a monetary claim you can make.”