Probate is a court-supervised legal process for transferring the assets of a deceased person to his or her heirs. Probate is required any time a person dies with assets in his or her name, regardless of whether or not the person has a valid will. Because of the expense and hassle of probate, many people prefer to avoid probate if possible.
There are several ways to avoid probate, but all of them are based on the same principle: Probate can only be avoided by arranging your assets so that there is nothing in your name that does not automatically pass to someone else at your death. If you die owning any assets that do not pass automatically to someone else at your death, probate will be required to transfer those assets.
Most financial accounts—like checking, savings, brokerage, retirement, or other investment accounts—can be titled to pass automatically at your death without the need for probate. If the account is jointly owned with rights of survivorship, it will pass to the surviving owner or owners at the death of one of the owners. Similarly, a payable-on-death or transfer-on-death designation may be added to a financial account to pass the assets to the named beneficiaries at death.
Real estate can also be titled to avoid probate by using the correct deed form. There are a number of deeds that can do this.
Using Florida Lady Bird Deeds (Enhanced Life Estate Deeds) to Avoid Probate in Florida
A Florida lady bird deed (technically called an enhanced life estate deed) is a popular option for avoiding probate of real estate in Florida. A Florida lady bird deed is a special form of life estate. Like all life estates, a lady bird deed allows one or more people to possess the property for life, with the remainder to pass to someone else at death.
Traditional life estates have some drawbacks as joint tenancies, including the impaired ability to deal with the property without the consent of all co-owners. But lady bird deeds differ from traditional life estate deeds in an important way: a lady bird deed deed allows the original owner to change his or her mind without involving the life tenant. A person who owns the property for life can change his or her mind about who will receive the property at death or simply undo the transfer at any time, without involving the remainder beneficiary.
Example: A father transfers real estate to his daughter using an enhanced life estate deed. A few years later, the daughter is in an accident and becomes unable to deal with the property. With an enhanced life estate deed, the father can simply undo to the transfer without the daughter’s involvement.
This added flexibility makes lady bird deeds a popular probate avoidance tool. Lady bird deeds are not recognized in every state, but are well-established in Florida. Our Deed Generator provides a Florida lady bird deed option, which includes the special language needed to create an enhanced life estate in Florida.
Deed to a Living Trust
Living trusts are the cornerstone of most estate plans designed to avoid probate. Like a Florida lady bird deed, a living trust allows you to take property out of your “probate estate” for legal purposes without losing any control over your ability to deal with the property. It does this by establishing a separate legal entity—the living trust—to own the real estate. This takes the real estate out of the owner’s name and thus out of the owner’s probate estate. This can be a good technique if the assets of the estate warrant the complexity of a living trust.
There is an open question about whether transferring a personal residence to a living trust could forfeit Florida homestead protection. A 2001 bankruptcy decision held that property transferred to a living trust forfeited this creditor protection because the trust was not a “natural person” as required by the homestead laws. But the same court later declined to follow that same decision, holding that property that was owned by a living trust was an exempt asset under Florida’s homestead laws. The unclear law on this issue has caused many estate planners to recommend that you not transfer your Florida homestead to your living trust.
The transfer of a Florida homestead to a living trust can also create Medicaid issues. A Florida homestead is not a countable resource for a Medicaid applicant. That means that there is no requirement to sell the Florida homestead when applying for Medicaid. This protection can be lost if the property is transferred to a living trust. Under Section 164.0576.07 of Florida’s Economic Self Sufficiency manual, all assets in a living trust—including a homestead—are considered to be countable assets for Medicaid purposes.
If the property being transferred is a Florida homestead, a Florida lady bird deed may be used to avoid probate without the risks associated with transferring property to a living trust. But if the property isn’t a Florida homestead and/or a transfer to a living trust is desirable, our Deed Generator can be used to transfer property into or out of a living trust.
Tenancy by the Entirety
Tenancy by the entirety is a special form of joint ownership of real estate by a husband and wife. When property is held as tenancy by the entirety, the property will pass automatically to the surviving spouse at the death of the first spouse. Creating a tenancy by the entirety is easy. If a husband and wife own real estate together, Florida law presumes that they intend to own it as tenancy by the entirety unless the deed specifies otherwise.
Joint Tenancy with Rights of Survivorship
A joint tenancy with rights of survivorship (sometimes referred to simply as a joint tenancy or by the acronym JTWROS) is a form of co-ownership between natural persons (human beings). With a joint tenancy, the surviving owner or owners will inherit a deceased owner’s interest at his or her death. The last owner to survive ends up with the entire interest in the property.
Naming someone as a joint tenant gives that person a real, present interest in the property. The joint tenant must consent to any transfers or mortgage of the property and the joint tenant may transfer his or her interest to others. An immediate transfer of interest to a joint tenant may also result in additional documentary stamp taxes, could adversely affect homestead exemption, and may result in the loss of a basis step-up resulting in higher income taxes when the property is sold. Many of these concerns can be avoided with a deed that does not take effect until death, such as a Florida lady bird deed.
Because of these characteristics, joint tenancies are often used only in situations where the transferor intends to give away a portion of the property during his or her lifetime. If the transferor intends for the transfer to occur at death, a Florida lady bird deed is a better alternative.