What Is A Life Estate? Explanation Of Life Estate Deeds - DeedClaim

Table of Contents

• What is a Life Estate Deed?
• How Life Estate Deeds Work
• How to Create a Life Estate Deed
• Comparison to Other Deed Forms
• Comparison of Life Estate Deeds to Lady Bird Deeds and TOD Deeds

What is a Life Estate Deed?

A life estate deed is a special deed form that allows a property owner to use the property during life and transfer the property automatically at death. Life estate deeds are designed to transfer the property at death without losing the ability to use the property during life.

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Comparison to Other Deed Forms

A life estate deed is not the only way to transfer property at death. Property will automatically transfer to the surviving owner at death if it is titled with right of survivorship (as tenancy by the entirety, joint tenants with rights of survivorship, or community property with rights of survivorship). With these forms of co-ownership, the owners have simultaneous possessory rights. Each owner can occupy or use the property at the same time.

A life estate deed is also a form of co-ownership. Both the life tenant and the remainder beneficiary have real interests in the property. But unlike other forms of co-ownership, they do not have property rights at the same time as each other. Instead, their interests are stacked in time. Only the life tenant has a right to current possession of the property. The remainder beneficiary’s interest does not begin until the life tenant’s death.

Comparison of Life Estate Deeds to Lady Bird Deeds and TOD Deeds

Life estate deeds avoid probate at death, but at the cost of sacrificing control during life. The transfer of an interest to the remainder beneficiaries gives the remainder beneficiaries present rights to the property. Even though the remainder beneficiaries do not have possessory rights to use the property while the life tenant is still alive, the life tenant cannot convey or mortgage the property without the consent of the remainder beneficiaries. This has been known to cause issues with loans. The life tenant also owes duties to preserve the property for the benefit of the remainder beneficiaries and must take their interests into account in making decisions.

Many people would prefer to avoid probate at death without sacrificing control during life. In the past few decades, an increasing number of states permit the use of other deed forms that avoid probate without loss of control. The two predominate deed forms are:

1. TOD Deed – A TOD deed (also called a beneficiary deed or transfer-on-death deed) allows the owner to name a beneficiary on the deed, similar to naming a beneficiary on a life insurance policy or bank account. During the owner’s life, the owner can freely revoke or change the beneficiary designation without involving or even notifying the beneficiary. Unless the designation is revoked, the property passes to the surviving beneficiary at the owner’s death.
2. Enhanced Life Estate (Lady Bird) Deed – Recognized in only a handful of states, the lady bird deed “enhances” the traditional life estate deed by giving the life tenant the power to revoke the deed or transfer the property to other owners without involving the remainder beneficiaries.

Like a traditional life estate deed, both lady bird deeds and TOD deeds avoid probate on the death of the life tenant. But unlike a traditional life estate deed, the original owner reserves the right to freely deal with the property without involving the beneficiary. The owner may change the beneficiary or undo the deed, all without the beneficiary’s consent or involvement. This flexibility often makes lady bird deeds and TOD deeds popular alternatives to life estate deeds for avoiding probate.