Some of you may be familiar with a document called a “Ladybird Deed,” and although the topic of deeds may not be as exciting as discussing the newest episode of Game of Thrones, I encourage you to read on because this is one powerful little document that can save time and money.
Most people have heard the term “Quit Claim Deed” which (stated briefly) is a deed used to add or remove someone from record ownership of real property. Issues tend to arise, though, because once this deed is recorded, the conveyance becomes irrevocable. Murphy’s Law: whatever can go wrong will go wrong, and so Quit Claim Deeds, while sometimes useful, can create quite a legal mess if not used properly. Family members sometimes utilize these Quit Claim Deeds in order to avoid probate or make an adult child the record property owner; but what happens when this adult child goes through a divorce, gets sued, or (sadly) predeceases the parents? This Quit Claim has now failed its intended purpose, as the adult child’s interest is now in limbo and may end up in the hands of a former spouse, creditor, or in unnecessary probate proceedings.
Enter in the Quit Claim Deed with a Life Estate Interest (sometimes known as a “Life Lease” or “Life Estate Deed”). This is a bit better, but it works very similarly to a standard Quit Claim Deed. A Life Estate Deed allows the parents to retain a right to live in the home for their lifetime. Once the parents die, title to the property passes to the child named in the deed. Sounds good in theory, but again, we are working with an irrevocable document. Once this Life Estate Deed is recorded, the parents no longer have any right and/or decision-making abilities for the property other than their right to live on it.
So, what can they do now? Is there a document out there flexible enough so that these parents can change their mind down the road but be prepared now? According to urban legend, this legal document was devised by the lawyers for Ladybird Johnson before she died, to allow her Texas ranch to pass to her children. This document is known as the “Ladybird Deed” aka “Enhanced Life Estate Deed.” An Enhanced Life Estate Deed works almost exactly like a Life Estate Deed with one special difference: you can change it at any time up until your death. Not only would these parents retain the right to live on the property, but they would also retain the right to sell the property during their lifetime, the right to change who they wish to leave this property to, and they avoid probate of the property.
An Enhanced Life Estate Deed may not be for everyone and may not work for your particular situation, but the moral of the story is: plan for the future now. Plan how you want to distribute your assets but don’t make permanent decisions because laws change, your family changes, and you change. Estate planning is not just a bunch of paperwork that you sign and forget about. You should review your plans with an attorney at least every few years or any time a major life event occurs. It is estate PLANNING and not simply an estate plan.
Emily Rogers is an attorney at Chesser & Barr, PA who handles real estate closings and estate planning matters. She can be contacted at Emily@chesserbarr.com. All articles are indexed and can be found online.