If you own property in your own name, when you die that property will be subject to a probate proceeding. However, there are steps you can take to avoid an often dreaded, time-consuming, costly proceeding where you close out decedent’s final affairs.
However, there are several probate avoidance techniques that you may employ to reduce the likelihood of probate or at least the scope of the administration. One of these probate avoidance techniques is executing a life estate deed which basically is a deed with a transfer on death designation.
Florida is one of the few states which recognizes an Enhanced Life Estate Deed.
Generally, when we talk about a life estate deed, we talk about a “Traditional Life Estate Deed” under which you retain the right to possess and enjoy your property for your lifetime and upon your death (or the death of your surviving spouse), the remainder (what is left after your life estate terminates) will pass to the remainderman (which is often your child) when you die.
Under a “Traditional Life Estate Deed” you will no longer be able to sell or mortgage your property without your child’s consent, the value of the interest transferred will be considered a gift for Medicaid purposes and will be the basis for a “waiting period” that could delay your access to Medicaid benefits to pay for skilled nursing home care. You may also be required to file a gift tax return.
On the other hand, with an “Enhanced Life Estate Deed” you could transfer the remainder to your child or to a revocable living trust that would permit greater control of the property after your death. There is no capital gains tax if the property is sold shortly after your death. However, you retain the right to change your mind. Without your child’s consent, you can take the property back and give it to someone else. In addition, you have the right to sell or mortgage the property and keep all of the proceeds without your child’s consent. If you sell the entire property, your child’s interest is extinguished and they get nothing upon your death.
Unlike a Traditional Life Estate Deed, with an Enhanced Life Estate Deed you do not need the condominium association approval, you do not need a mortgage company approval, the transfer should not affect your homestead tax exemption, you should be able to sell or mortgage your property without your child’s consent, you will not be required to file a gift tax return since IRS considers the transfer an incomplete gift. The value of the interest transferred will not be considered as a completed gift for Medicaid purposes and will not be the basis for a “waiting period” that could delay your access to Medicaid benefits to pay for skilled nursing home care.
In essence, the Enhanced Life Estate Deed is a great tool for avoiding probate while you still retain control of your property and are not left at the mercy of your child.