What is the Enhanced Life Estate Deed?

Definition of Enhanced Life Estate Deed

The enhanced life estate deed is a deed that transfers the ownership of real estate to beneficiaries outside of probate. This deed effectively gives the property away during your lifetime, but you still retain the right to use it.

How Does an Enhanced Life Estate Deed Work?

The original owner of the property, known as the “life tenant,” retains control over the property during their lifetime. The life tenant maintains the right to mortgage or sell the real estate without the consent of the beneficiaries or remainder persons mentioned in the deed. In fact, the property is not actually transferred until the death of the life tenant.

Enhanced Life Estate Deed vs. Traditional Life Estate Deeds

A traditional life estate deed also transfers the ownership of the property before death, but the owner cannot mortgage or sell the home without the consent and “joining” of the remaindermen. This type of deed gives the remaindermen present interest. The owner retains the “right to live,” meaning the right to remain there until death. “Joining” means that these individuals are parties to any mortgage or sale.

Enhanced Life Estate Deed vs. Transfer on Death Deeds

If you do not live in one of the five states that recognize lady bird deeds, you may want to consult an attorney to explore other estate planning mechanisms. Transfer on death deeds work similarly to enhanced life estate deeds. They do not take effect and transfer ownership to beneficiaries until after death, but the language in the deed must explicitly state this.

Impact on Medicaid Eligibility

The government imposes a “look-back period” of five years on Medicaid eligibility if the time comes when you need long-term care and apply for these benefits. This means you cannot transfer ownership of assets within five years of applying. Some people have done this in an attempt to “spend down assets” in order to qualify for assistance, which is need-based.

Will I Need to Pay Estate Tax?

A home transferred via a lady bird deed contributes to the value of the owner’s estate for estate tax purposes. The home is considered an inheritance granted to the remaining beneficiaries. Only properties valued over $12.06 million are subject to federal estate tax as of 2022.

The beneficiaries will receive a “stepped-up basis” for any capital gains tax that may be due if they sell the real estate after your death. Their basis in the property is its value at the time of your death, not its value at the time you originally acquired it, as would be the case if it were transferred to them during your lifetime. This can make a significant tax difference.

Source: https://www.thebalancemoney.com/enhanced-life-estate-deed-3505518