Estate Planning with Deeds

Types of Deeds

Real estate is frequently the most valuable part of an estate. A popular planning method for property owners who are interested in avoiding probate is to deed their property to their children, in whole or part, while they are still alive. This planning method has some advantages and disadvantages, depending on type of deeds used and state law. When considering whether to use a deed to transfer property to their children, parents should consider a number of factors, including: whether the transfer avoids probate; subjects the property to debts of children while parents are alive; whether transfer can be changed without children’s permission; impact on Medicaid spenddown and Medicaid estate recovery; and tax impact of transfer and eventual sale.

Real estate can be owned in a number of different ways, which are reflected in the type of deed used. Some of the more common types ownership/deeds are:

  • Tenants in Common
  • Rights of Entirety/Entireties
  • Rights of Survivorship
  • Transfer on Death (ToD) Deed
  • Reservation of Life Estate
  • Reservation of Life Estate with Power of Appointment
  • Enhanced Life Estate Deeds / “Ladybird” Deeds

All of these types have potential estate planning applications of varying utility.

Chart of types of Deeds | Deed Comparison Chart

Click on image to enlarge.

Most Common Forms of Deeds

Tenants in Common

Each co-tenant (who do not have to be related) owns an undivided interest in the property. This is type of tenancy created if no survivorship language is expressly included in the deed.

Major disadvantages is that each tenant’s interest will need to be probated at their passing. Additionally, property is subject to the individual creditors of the co-tenants and each co-tenant can transfer their interest without the permission of the others.

Rights of Entirety/Entireties

Ownership by right of entirety is a special type of ownership only available to married couples. When one spouse dies, other spouse owns property without probate.

Major limitation is that it is only available to married couples. Neither spouse can either sell or encumber the property on their own. And individual creditors of the spouses cannot place a lien on the property, except for them IRS. Property is subject to probate at death of second spouse.

Rights of Survivorship

This type is similar to tenancy by the entireties, except the owners don’t have to be married and there can be more than two. When an owner dies, his/her share is transferred to the remaining owners without probate.

Major advantage is that property will avoid probate, until death of last surviving owner. Major disadvantage is that property is subject to probate when last listed owner dies.

Other Forms of Deeds

Transfer on Death (ToD) Deed

A ToD deed is a way to add a beneficiary to real estate. Owner remains sole owner who can sell or encumber property. When owner passes away, it is transferred to beneficiary without probate.

This type of deed has two major advantages: grantor can change his/her mind without permission of beneficiary and property will pass to beneficiary without probate. The major disadvantage is that it’s not available in many states.

Reservation of Life Estate with Power of Appointment

This deed type works the same as a deed with a reserved life estate, except that life estate holder can designate and change the remainderman after deed is signed.

The major advantages of this type are that it avoids probate and grantor can change beneficiary without remaindermen’s cooperation.

Reservation of Life Estate

A life estate is the right to the use and enjoyment of property until your passing. When an owner transfers property with a reservation of a life estate, he/she has kept the exclusive lifetime use of property and at his/her death, property is owned by the listed beneficiaries (called “remaindermen”) without probate.

This type of deed avoids probate on death of life estate holder. However, the life estate holder (former owner) cannot change their mind about the transfer without the cooperation of the remainderman. The property is also immediately subject to the remaindermen’s creditors, although any foreclosure would be subject to the reserved life estate.

Enhanced Life Estate Deed/"Ladybird" Deed

An enhanced life estate deed involved the retention of a life estate with property passing to a designated beneficiary on life estate holder’s death. The “enhancement” is that at any time prior to his/her death, life estate holder can change his/her mind and rescind the deed. When the life estate holder passes, property transfers to listed beneficiaries without probate. This type of deed is only available for property located in Florida, Michigan and Texas.

This type of deed has two major advantages: grantor can change their mind about the transfer/beneficiary and real estate is not subject to Medicaid spenddown. However, its only available in three states: Florida, Michigan and Texas.

Joint Tenancy with Rights of Surviroship PDF cover.

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