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Avoiding Probate with
the
Enhanced Life Estate Deed
By Martin H. Cohen
Virtually all of my clients want to know how to pass their assets to their
children without the expense (legal fees) or delays that they think will be
involved in probate. This article is not intended to discuss the probate
process, but to get started I must mention certain principles:
If you own property in your own name when you die, your beneficiaries will
have to hire a lawyer to probate your estate. However, certain assets will
pass under the terms of the contract between you and, for example, your
bank, where you have named a beneficiary on your account. This also works
for insurance policies, annuities, and IRA accounts.
Similarly, for real estate, if you own your condominium in your own name
when you die, your family will have to go to court to clear the title so
that they can sell the property. However, there are exceptions:
1. Husband and Wife. When a husband and wife own the apartment
jointly (known as an estate by the entireties), the survivor will
automatically own the property upon the death of the other. You will need to
see an attorney, but the legal services involved are minor compared to
probate.
2. Transfer to Revocable Living Trust. Your personal residence is
secure in Florida and cannot be taken from you even if you have judgments
against you. However, in 2001, a Bankruptcy Court case concluded that if you
transfer your homestead into a revocable trust, it no longer is exempt from
creditors’ claims. Since then, prudent estate planning attorneys resist
transferring homesteads into revocable living trusts. This homestead protection
has nothing to do with the Florida Homestead Tax Exemption. The tax
exemption is still available to personal residences in trust, provided that
the trust specifically states that you can live in the property.
3. Jointly with Child (or Children). If you transfer title to a child
and hold title as joint tenants with right of survivorship with the child,
there will be no probate when you die (or the survivor of a husband and wife
dies). Here also the child should see an attorney, but the legal services
are minor compared to probate. On the other hand, there are potential
problems that should make you think twice before putting the title in joint
names with your child.
a. This may be prohibited or restricted under the condominium documents, or
may require association approval.
b. If you have a mortgage, you will need lender approval. If they permit it,
they will charge a fee.
c. The transfer may result in the partial loss of your homestead tax
exemption.
d. The child will have to pay capital gains tax when the property is later
sold based on his gain in the half interest. For example, if the apartment
cost you $50,000 in 1996 and you later transferred half to your child, he
would have a tax basis of $25,000 in one-half of the apartment and would
have to pay tax on the difference between one-half of the sales price and
$25,000.
e. If your child has any income tax liens or judgment liens against the
child’s share, they must be cleared before the property could be sold.
f. You could no longer sell or mortgage your property without your child’s
consent.
g. You may be required to file a gift tax return.
h. 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.
4. Traditional Life Estate Deed. Alternatively, you could do a
traditional Life Estate Deed under which you retain the right to possession
and enjoyment for your lifetime, and upon your death (or the death of the
surviving spouse), the remainder (what is left after your life estate
terminates) will pass to the child (here known as the “remainderman”) when
you die. Although you may not have all of the problems mentioned under item
3, you will at least be faced with items e, f, g and h.
5. Enhanced Life Estate Deed. With an Enhance 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. The Enhanced Life Estate Deed is a
specially designed instrument that is only available in a few states,
including Florida. It is similar to a traditional Life Estate Deed,
and there is no capital gains tax if the property is sold shortly after your
death. However, you retain the right to change your mind. That’s right.
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. To
underscore the difference between the Traditional and Enhanced Life Estate
Deed, with an Enhanced Life Estate Deed,
a. The condominium association approval should NOT be required.
b. You should NOT need mortgage company approval.
c. The transfer should NOT affect your homestead tax exemption.
d. You should be able to sell or mortgage your property without your child’s
consent (although some title companies may ask for your child to sign).
e. You will NOT be required to file a gift tax return since IRS considers
the transfer and incomplete gift.
f. 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.
g. However, if your child has any income tax liens or judgment liens, they
may have to be paid off before the property can be sold. There are
differences of opinion on this point. Until there are court decisions
resolving these issues, we assume that the liens will have to be cleared.
Many attorneys take the position that if you can sell your property without
the signature of your child (the remainderman), then why should you have to
pay off the remainderman’s lien in order to sell your property?
In conclusion, the Enhanced Life Estate Deed is an incredible tool for
avoiding probate with minimal downside when compared to the alternatives
If you have questions about anything on this
website, or if you wish to schedule an appointment, contact Mr. Cohen at
(954) 400-5511 or by
E-mail.
Mr. Cohen maintains two offices for the practice of
Estate Planning, Elder Law and Disability Law in Broward County, Florida
for the convenience of his clients:
Flamingo Falls Professional Center
1806 N. Flamingo Rd.
Suite 300
Pembroke Pines, FL 33028
and
Crossroads One
8201
Peters Rd., Suite 1000
Plantation (Fort Lauderdale),
FL 33324
For those of you who are unfamiliar with South Florida geography, Broward
County has 30 municipalities, including:
Coconut Creek,
Cooper City,
Coral Springs,
Dania Beach,
Davie,
Deerfield Beach,
Fort Lauderdale,
(Ft. Lauderdale),
Hallandale Beach,
Hillsboro Beach,
Hollywood,
Lauderhill,
Lauderdale Lakes,
Lauderdale-By-The-Sea, Lazy Lake,
Lighthouse Point,
Margate,
Miramar,
North Lauderdale,
Oakland Park,
Parkland,
Pembroke Park,
Pembroke Pines,
Plantation,
Pompano Beach,
Sea Ranch Lakes,
Southwest Ranches,
Sunrise,
Tamarac,
Weston,
Wilton Manors.
For
information on these cities, click on the appropriate link.
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