A common request for legal services we receive from prospective clients will come in the form of a homeowner, perhaps, say, a widower who owns property by himself, asking us to add an adult child “into title.” The desired goal being that, when the parent dies, the child will then own the property, without the need for probate. One way to accomplish this, and the way the request for legal services often comes in from the parent, is to have the child added “into title” with the parent, meaning that the child becomes a joint owner of the property with the parent, with each owner then having the right of survivorship. When set up correctly, assuming the parent predeceases the child, this will accomplish the desired goal – to ensure that the property passes to the child upon the parent’s death, and without the need for probate (as to that asset, anyway). However, due to a number of concerns, that is typically not the preferred way of going about this. Rather, in most situations, a preferred, but perhaps little-known, course would be to proceed with an Enhanced Life Estate Deed, sometimes referred to as a “Ladybird” Deed.
Adding a Child to Title as Joint Tenants with Right of Survivorship
Many parents want to add their adult children to the title of their home, with each owner then having a right of survivorship. This means that when the parent dies, the child would automatically own the home. This can be a way to ensure that the home stays in the family, and it can also help to avoid probate.
However, there are some potential drawbacks to adding a child to title as joint tenants with right of survivorship.
- Perhaps the most important concern would be that the child would then have an equal say in what happens to the home, even if the parent is still alive. This could lead to disagreements over things like repairs, renovations, payment and liability of certain expenses, and even whether or not the parent could decide to sell the home.
- If there is an outstanding mortgage encumbering the property, adding a person into title as a co-owner can trigger documentary stamp tax liability.
- Another concern is if the child gets into financial trouble, the child’s creditors could potentially look to the home as an asset that can be utilized to satisfy the debt owed by the child.
- Finally, adding a child to title as a joint owner during the parent’s lifetime could have negative tax consequences, aside from the documentary stamp tax concern stated above. The potential negative tax consequences are well outside the scope of this discussion, and is not anything that Battaglia Law will provide advice on; rather you would be encouraged to address the concerns with a tax professional, such as a Certified Public Accountant, or tax attorney.
Enhanced Life Estate Deed
Therefore, if the sole purpose is to ensure the child receives the property upon the parent’s death, to mitigate some or all of the drawbacks of adding an adult child as a co-owner during the parent’s lifetime, a preferred approach is typically for the parent to proceed with an Enhanced Life Estate deed (or “Ladybird” deed). With an enhanced life estate deed, the parent retains ownership of the home during the parent’s lifetime, with the child named as the “remainderman.” This means that the child will automatically own the home when the parent dies, but the “enhanced” aspect of the Ladybird Deed means that the parent retains 100% of the control and decision-making over the property during the parent’s lifetime.
The advantages to using an enhanced life estate deed include the following:
- The parent has peace of mind knowing that their child will inherit the home.
- It prevents the home from going through probate, which can be a time-consuming and expensive process.
- Some of the potential negative tax implications are mitigated or removed completely.
- Documentary stamp taxes are typically not triggered, even when there is an outstanding mortgage encumbering the property.
If you are interesting in adding a person into title with you, you should talk to an attorney about whether an enhanced life estate deed is the better option for you. The Ladybird Deed is not foolproof, however, as homestead and marital status (present and future) can impact the effectiveness of the Ladybird Deed.
Also, while a home is usually an individual’s most valuable asset, having an Enhanced Life Estate deed in place is no substitute for consulting with a Florida Estate Planning and Trust attorney for a thorough review and holistic approach to your wishes and desires for your property upon your death. In other words, a Ladybird Deed should be used in conjunction with, and not as a replacement for, a complete and thorough estate plan.
It is important to talk to an attorney to discuss your specific situation and to get legal advice on the best way to transfer ownership of your home, whether during your lifetime or upon your death. Contact Lakewood Ranch real estate law firm, Battaglia Law, PLLC, today to set up a consultation.
