Attorney & Mediator
Attorney & Mediator

What is a “Lady Bird Deed”?

Many individuals would like their family members, usually children, to receive their real property upon their death.  Additionally, they would prefer that the property not go through Probate Court.

Often, they will simply add their children’s names on to the deed; however, this may not be a good idea.  If the children are added as joint tenants, they will have rights in the property and the parent will not be able to sell the property without the permission of the children.

A better solution is the “Lady Bird” Deed.  Another name for this is the Enhanced Life Estate Deed.

This type of deed transfers the property to themselves and their children.  The difference is that they retain (hold back) a life estate and an ability to sell the property at any time.

Why is this better?  The parents still own the property and can sell or give it away at any time without any interference from their children.  If they still own the property at the time of death, the property will pass to the children.

This avoids probate court.  It avoids an increase in the taxable value for property tax purposes (the so called “pop up”) and it avoids capital gains because the children do not receive any value until the parents pass away.  Therefore, the children still get a stepped-up basis for income tax purposes.

For individuals that do not want to have their property in a trust, yet want to avoid Probate, the Lady Bird Deed is a convenient and easy manner to transfer real property to the next generation.

Revocable Trusts – Funding

Many clients go through the process of having a well drafted estate plan prepared that includes a Revocable Trust.  After they have signed the documents and received the Trust, it is put away in the safety deposit box and forgotten.  They thought that they were all through.

Unfortunately, this happens often, but this is unfinished business.  A trust only controls the assets that are in the trust – titled in the trust.  This is known as funding.

It is usual for the attorney who drafted the trust to prepare deeds to transfer all real estate interests into the trust.  However, the grantors are not done.  All other assets need to be transferred into the trust.  If this is not done, the trust will not control the assets and it will become ineffective.

Property left in joint tenancy will pass to the joint tenant upon death.  Assets left in the sole name of one of the grantors will have to go through the probate process.

Once you have signed your Revocable Trust you need to follow through on the funding process.

  • Bank accounts (checking and savings) – you need to go to the bank and request that the accounts be transferred into the name of your trust.  The bank will prepare paperwork for you to sign.
  • Financial accounts – you must contact your financial advisor and inform him/her that you have signed a revocable trust.  Documents will be prepared to transfer your assets into the name of the trust.
  • Life Insurance – you need to execute new beneficiary designations.  Even if you choose to leave your spouse or partner as the primary beneficiary, you will in all likelihood want to name your trust as the continent beneficiary.

Exception:

·           Retirement accounts, such as IRAs and 401(k)s – if you were to transfer these assets into your trust, you would trigger a distribution with negative income tax consequences. In some circumstances you may want to change the beneficiary designation of these accounts to your trust, however, you should discuss the tax consequences with your financial advisor and attorney.

Your Parents are Declining with no Estate Plan – what to do?

You may have noticed that your parents are declining – not only physically, but mentally as well.  You are concerned that they will be unable to handle their own financial and legal affairs soon.  What could the consequences be?

If your parents do not have a Durable Power of Attorney and a Patient Advocate Designation (Durable Power for Health Care) in place, there is a possibility that a Guardianship or Conservatorship will become necessary if they decline to the point that they are no longer competent to handle their affairs.

What can you do?  This is a delicate area as many parents may feel threatened – as if you are trying to take away their independence.  They are fearful that you want to control them.

One way to approach this matter is to tell them that you just did your estate plan and now have great peace of mind.  You might ask if they have updated theirs.  This may start a dialogue about whether they have any documents in place at all.

Another possibility is to tell them a story about a friend who’s parents did not have any documents in place and how difficult it was for the family to go to court to get a Guardianship and Conservatorship.

Sometimes there is a fine line between being well meaning and protecting your own inheritance. For that reason, lawyers typically insist that they have an opportunity to meet with the parent separately, even if a child provides transportation to the office.

If you are successful in getting them to make an appointment with an attorney to discuss these matters, even if you transport them to the office, preserve their dignity by offering to wait in the waiting area while they privately discuss their business with the attorney.

Planning for Long Term Care

Many clients go to great lengths to have a solid estate plan and a very well thought out financial plan.  They do not, however, consider the affect that long term care could have upon their plans.

First, everyone should have a plan.  That may not mean that you have insurance, but it does mean that you discuss your preferences with your family.  You may hope that one of your children will assist you when the time comes that you are unable to care for yourself.

You need to have a discussion with your children concerning this issue.  While many children would prefer not to place their aging parents into a nursing home, they may not have any alternative.  For some families, parents with medical needs come at the same time as children are going to college.  This can financially strap a family so that a child cannot cut back on work to care for their parent.

Another difficulty can be distance.  If you do not live in the same city as your children do, it will make caring for you difficult if you desire to remain in your home.

If one of your children is agreeable to providing care for you when you are declining, it is important to discuss this with the entire family.  How will this work?  Will the care giving child be given a stipend to offset the time and energy that they are devoting to this task?  Will there be a monthly allowance made for food and costs?  If these matters are not discussed in advance, it can become a sore point later.

If care at a child’s home is not possible, do you have sufficient assets for nursing home care?  If you are married, will this impoverish the survivor?  If these are concerns, then you should consult a long term care insurance specialist to determine whether the cost of long term care insurance is a possibility.

The plan for each individual may be different.  The need to plan is important for everyone.