In this article, you will find out what is a life estate in Florida. A life estate can be used to avoid probate, but it has significant disadvantages. You will also learn about enhanced life estates, which are often called a Lady Bird Deed. Finally, we will discuss how the various life estates in Florida impact the probate process, and why you might consider using them when doing your estate planning.
What is a life estate?
A life estate is a type of joint ownership of real property. The joint owners are the life estate owner, and the remainder beneficiaries.
Life estates allow someone to live in their home during their lifetime and transfer it to a beneficiary upon their death.
It allows the original owner of a property to continue use of the property during his or her life. When the original owner dies, ownership of the property passes to the named beneficiaries.
The life estate owner, also known as the life tenant, gets to use the property during their lifetime. On the death of the life tenant, the property passes onto the remainder beneficiaries.
The transfer of the remainder interest happens outside the probate process. Therefore, life estates in Florida will work to avoid probate.
How do you create a life estate in Florida?
Any property owner can create a life estate. The owner of the property executes a traditional life estate deed. The deed names the life tenant, and then names the person or persons that will receive the property at the time of the life tenant’s death.
How does a life estate affect property ownership?
Real property is generally owned in fee simple. This means that the current owner of the property owns all interests in the property. This is true, even if there is a mortgage on the property, or if more than one person owns the property.
A quit claim deed or a warranty deed usually conveys property in fee simple.
However, a regular life estate deed splits ownership of the property into two estates. The first is the life estate and the second is the remainder interest.
The owner of the life estate interest gets use of the property during their lifetime. The owner of the remainder interest gets to inherit the property when the life tenant dies.
The problem with a life estate is that use of the property does not equal complete control of the property. The life estate owner cannot sell the property without the remaindermen’s consent. The life estate owner also cannot mortgage the property without the remaindermen’s consent.
The loss of full control of the property is one of the reasons that Florida residents rarely create a traditional life estate.
What is the benefit of a life estate?
A life estate can help a property owner avoid probate, and can help with Medicaid planning.
Avoiding Probate
The main benefit of a life estate is that the property will pass to the beneficiaries by operation of law. There will be no need for probate or probate court.
Say a person’s estate consists mainly of their primary residence, and the person wants their property to pass to their children or grandchildren. In such a situation, a standard life estate deed may be a perfectly good idea. It is cheap and quick.
Upon the death of the life estate holder, the beneficiaries get the property by operation of law.
Medicaid Planning
Since a life estate property passes to the remainder beneficiaries by operation of law, it is not part of the original owner’s probate estate. Therefore, the property subject to life estate will not be available for Medicaid estate recovery.
Therefore, some type of life estate deed may be a good tool for Medicaid planning for non-homestead property.
Please do note that the life estate owner still owns the property during their lifetime. Therefore, a life estate deed will not help a person with Medicaid eligibility.
Medicaid planning is very complicated. If you want to include Medicaid planning as part of your estate plan, then you should consult with a Florida elder law attorney.
What is the problem with a life estate?
Some of the problems with a traditional life estate are loss of control, uncertainty with remainder beneficiaries, and the inability to change beneficiaries.
Loss of control with a life estate
Once an owner executes a Florida life estate deed, the beneficiaries have a type of ownership interest in the property. These remaindermen have the right to expect that they will inherit that property.
This means that the life estate owner no longer has full power to sell the property. If the owner sells the property, then the remainderman have nothing to inherit. Therefore, the life estate tenant no longer has the legal right to sell the property without the consent of the remainderman.
Not only do the remaindermen have a right to inherit the property, but they have a right to inherit the same interest in the property that the original owner had when they executed the life estate deed.
This means that the life tenant cannot mortgage the property without the consent of the remainderman. This might not be a big deal, unless of course the property might need some unexpected, extraordinary repairs. However, if you need a second mortgage to re-roof the house or to re-build the seawall, you will need the remainderman’s consent.
Uncertainty with Remainder Beneficiaries
A life estate deed names the remainder beneficiaries. So an owner might execute a deed where they retain the life estate, and name their two children as the remainder beneficiaries.
But what happens if one of their children dies young, leaving a surviving spouse and some minor children behind? Well in such a case, the owner’s grandchildren would become the remainder beneficiaries.
If the grandchildren are minors, then their surviving parent would effectively receive the property. This may be okay, but few people intend to leave their property to their son or daughter-in-law.
Furthermore, if one of the remainder beneficiaries were to die before the life tenant, then the property would have to go through probate. This would be necessary to ensure that the deceased beneficiary’s interest gets passed down to the rightful heirs. Therefore, one of the main benefits of a life estate, avoiding probate, would be lost.
Inability to Change Remainder Beneficiaries
Perhaps the greatest potential problem of a life estate in Florida, is the inability to change the remainder beneficiaries. A regular life estate deed is irrevocable. You cannot revoke or change it after recording it with the county.
On the surface, this might not be a problem for a person that wants their children to be the remainder beneficiaries. Especially if those children are responsible.
But what if one of the children develops a drug, alcohol, or gambling problem? Do you really want them to inherit a portion of a house, and then blow the proceeds on dope? Probably not.
However, there is an even more unfortunate possible scenario. What if one of the beneficiaries is in an accident, becomes disabled, and gets on Medicaid? When they receive their remainder interest, they will get disqualified from Medicaid. Then they would have to spend all of their inheritance on medical care before they could re-qualify for Medicaid.
What is a Better Solution?
The main benefits of a life estate are avoiding probate and passing your property to beneficiaries quickly and inexpensively. You can also accomplish these goals with a different type of deed, or perhaps a revocable trust.
Florida Enhanced Life Estate Deed or Lady-Bird Deed
A good alternative to a regular life estate deed is a Florida enhanced life estate deed. This type of deed is often called a Lady Bird Deed. It is named after Lady Bird Johnson.
A Lady Bird deed also creates a life estate, but it is an enhanced life estate. The main advantages of a Lady Bird Deed over a regular life estate deed are:
- The property passes to the remainder beneficiaries by operation of law
- The life tenant does not need anyone’s permission sell, mortgage or give away the property during their lifetime,
- The life tenant can change the remainder beneficiaries.
Property Passes By Operation of Law
When the life tenant dies, the remainder beneficiaries receive the property by operation of law. Therefore, there is no probate, no need for probate lawyers or courts.
This is similar to a pay on death, or transfer on death, designation on a bank account. When the account holder dies, then the POD or TOD beneficiary just presents the death certificate, and they receive the funds.
Some states, like Wyoming, allow transfer on death deeds. Florida statutes do not.
Fortunately a Florida enhanced life estate deed works much the same way a TOD deed. Upon the owner’s death, the property transfers directly to the remainder beneficiaries. All you will need is an affidavit and a death certificate.
Grantor (Life Tenant) Retains Full Control Over Property
The main advantage of an enhanced life estate over a regular life estate is that the original property owner retains control.
The grantor of the enhanced life estate has an unrestricted right to sell, convey, give away, mortgage, lease or otherwise dispose of any or all interest in the property, during their lifetime.
The grantor does not need the remainder beneficiary’s permission to do any of this. Furthermore, the grantor does not need to share any of the sale proceeds with the beneficiary.
Grantor Can Change Beneficiary
The grantor of the enhanced life estate can easily change the beneficiary. All he has to do is execute another enhanced life estate deed. The new deed conveys the property to himself, and names new remainder beneficiaries.
Revocable Living Trust vs Enhanced Life Estate Deed
A revocable living trust (RLT) will also transfer property outside of probate. An RLT also allows to property owner to retain full control of the property, and allows the owner to change the beneficiaries at will.
A revocable trust will also allow a property owner to lots of other things with their property. However, it is more expensive to set up, and it requires ongoing attention.
If the bulk of a person’s property consists of real estate, then use of an enhanced life estate deed may a better solution.
Life-estate deeds can be found for free from many legal forms providers. Some government agencies also provide forms. For example the Palm Beach County Clerk has an Enhanced Life Estate – Lady Bird Deed form available to view and download.