Q. My primary asset is my home, which I purchased about 35 years ago and now own free and clear. I would like to leave it to my son, but in a way that avoids the fuss of a probate or trust administration when I die. Is there some way to do this?
A. Yes, indeed. You might consider leaving it to your son via a Life Estate Deed. A Life Estate Deed (“LED”) is a special kind of deed which you would sign and record now, but which would transfer your home to your children down the road, upon your death, while reserving to you the exclusive right to live in your home during your lifetime. Upon your death, your child’s interest would mature into a full ownership interest
One of the nice features of this LED, is that the clearing of title upon your demise is very simple. At that time, your son need only file with the county recorder an affidavit reciting the fact of your death, along with a certified copy of your Death Certificate and other routine transfer documents. There would be no probate and no trust administration to deal with.
However, as with many legal matters, there are “Pros” and “Cons” to using this special deed. Here are some of them:
Advantages:
1) Upon your demise, clearing title and confirming ownership in your children is a simple procedure, handled without probate or trust administration.
2) The home would receive the same favorable tax treatment accorded a transfer, upon death, via a Living Trust or Will: Your children would receive the home with a tax basis equal to its increased value at your death, thus minimizing any capital gain tax if they later sell the home.
3) Should you ever apply for a Medi-Cal Long Term Care subsidy to help with nursing home expense, the home would be protected from a post-mortem recovery claim for reimbursement.
4) In terms of title insurance, this LED is better than the new Transfer on Death (TOD) Deed, as many title companies are unwilling to insure the transfer of title where the newer, TOD Deed has been used.
Disadvantages:
1) Once the deed is signed and conveyed, you cannot change your mind by revoking the conveyance, or at least not without your son’s agreement.
2) Once the deed is executed, you would not be able to obtain a conventional or reverse mortgage secured by the home. This could impact your financial needs in the future, including funds for long term care.
3) Once done, you could not sell the home without agreement of your son, and if sold, the proceeds must be “split” between you according to the value of your respective interests. This restriction could impair your ability to sell the home to help fund your own retirement or long term care expenses.
4) Disputes may arise regarding responsibility for repairs or improvements.
5) If your son were to predecease you, his interest would go as he directs in his own trust or will or, if none, to his heirs-at-law. Thus, you would no longer control the ultimate disposition of your interest.
While many of these disadvantages can be eliminated by creating a formal “Living Trust”, the trade-off is the greater expense of creating a trust, and the time and expense of a formal, post-mortem trust administration upon your demise. Another alternative is a Transfer on Death Deed (“TOD” Deed), but there are downsides to that option as well. See this link to an article on the TOD Deed.
Before making the decision to use a LED — rather than a “Living Trust” or Will– it would be wise to seek professional advice from a knowledgeable attorney to make sure that this special deed is right for you.