By Laurie E. Ohall, Florida Board-certified Elder Law Attorney
When it comes to estate planning in Florida, there are a myriad of different options designed to protect and distribute assets. Two commonly used tools are revocable trust and enhanced life estate deeds (also known as a ‘lady bird’ deed). While both allow someone to transfer their assets after death, each tool has its pros and cons.
What Is a Revocable Trust?
A revocable trust (also known as a ‘living trust’) is a legal entity created by a person (the grantor) to hold and manage their assets during and after their lifetime. The grantor retains the right to amend, modify or revoke the trust at any time. The advantages to a trust are:
- Flexibility: A trust can be amended or revoked at any time, thereby allowing for adjustments to your estate plan (if a beneficiary dies, or if a grandchild is born, etc.). Also, a trust can hold any type of asset, such as a homestead, other real estate, financial accounts, business investments, etc.
- Avoids probate: If the trust is funded correctly, this will avoid probate at the death of the grantor.
- Privacy: Unlike a will (or a lady bird deed) both of which are a matter of public record (either at the recording of the deed or at death in the case of the will), the trust remains private and confidential.
- Control: Because the grantor retains the right to amend or revoke the trust, they can control what happens to the assets both during their lifetime and even after death.
Really, the only disadvantage to a trust is the cost and the time it takes to fund the trust.
Enhanced Life Estate Deeds (AKA a Lady Bird Deed)
A lady bird deed is a way to transfer real estate, whether it be a homestead or nonhomestead property, to a beneficiary upon the death of the property owner. The advantages include:
- Lifetime control: With such a deed, the owner of the property retains the right to live on the property and to use it, or sell, mortgage, rent, etc., during their lifetime. Upon their death, it passes to the beneficiaries named in the deed.
- Avoids probate: This deed avoids probate; also, upon the death of the owner, the beneficiaries record the owner’s death certificate, and the house is in their names. Additionally, the beneficiaries will receive the ‘step-up’ in basis, as they will via a trust, so capital gains tax would be at a minimum, if any.
- Cost-effective: Compared to a revocable trust, a lady bird deed is more cost-effective.
- Not a gift for Medicaid: If you need to apply for long-term care benefits in the future, this type of deed will not disqualify you from doing so.
The disadvantage of a lady bird deed may cause many to decide this option is not for them. There can be title insurance concerns; if family members do not get along, then having them own property together may not be a good idea; and there is limited flexibility if you want to change or revoke the deed.
Estate planning is a personal matter, and what works for one person may not work for another.
It is important to talk to a qualified estate planning attorney who can help you assess your situation and explain your options to you. Understanding the differences between the options can empower you to make the right choice for yourself.
