When deciding how to structure the inheritance of real estate, your goals and family dynamics will be the driving force for which option you choose. First, let’s explain these two options.*

Lady Bird Deed

This type of deed is also known as an Enhanced Life Estate Deed. A Lady Bird Deed allows the property owner to name a beneficiary (known as a remainderman) in the deed who automatically inherits the property when the owner dies. The owner remains the “life tenant” of the property during the owner’s lifetime and has full ability to sell, mortgage, lease, and otherwise manage the property and receive all the benefits from the property. At the owner’s death, the death certificate gets recorded in Public Records and the remainderman immediately takes full ownership of the property. No probate needed! Also, if the owner changes their mind, a new deed can be drafted which effectively revokes the lady bird deed, allowing for flexibility during the owner’s lifetime.

Revocable Trust

A Revocable Trust becomes a legal entity upon signing by the grantor (a.k.a. trust maker). The trust can own property during the grantor’s lifetime or assets can flow into the trust after the grantor’s death. Upon the grantor’s death, the trust continues in existence and a successor trustee takes over managing the trust assets. The trust document instructs how assets are managed and distributed to the beneficiaries who inherit the assets via the trust. During the grantor’s life, the trust can be amended or revoked, thus providing flexibility for changes. Revocable trusts are a common tool used in estate planning to streamline inheritance and avoid probate. Trusts are a particularly powerful tool if the grantor wants to maintain control over assets for the beneficiaries by structuring the inheritance to stay in trust for a certain period of time, staggering distributions, or requiring contingencies to occur before the beneficiary gets access to trust assets. Trusts also allow for pre-planning for unknowns like a beneficiary passing away before the trust fully distributes and other potential “what ifs”.

Which One is Better?

This is where we get back to your goals. Below is a breakdown of the pros and cons of Lady Bird Deeds and Revocable Trusts.

Lady Bird Deed Revocable Trust
Pros ✅
  • Avoids Probate
  • Life tenant (owner) retains control during lifetime
  • Low-cost option
  • Avoids Probate
  • Grantor retains control of trust assets during lifetime
  • Control of inheritance of trust assets
  • Private document
  • Can plan for “what ifs”
  • Covers many types of assets
Cons 🚫
  • Limited to real estate
  • A public document
  • No control of inheritance after life tenant’s death
  • Limited planning for “what ifs” (can get messy if remainderman dies before the life tenant)
  • More expensive
  • More complex

 

So, like a typical lawyer, the answer is “it depends”. If you have an adult child who’s doing well and you want your house to go to them without probate, don’t have any other tricky assets, and a lower-cost option is favorable, then a Lady Bird Deed is a great option. But, on the other hand, if you have minor children, a more complicated family dynamic, or more complex or varied assets, a Revocable Trust is likely going to be a better option.

The most important thing, regardless of whether you decide to use a Lady Bird Deed or a Revocable Trust for the inheritance of your real estate, hire a qualified attorney to assist you.

 

* There are other planning options for real estate, for example, structuring ownership in an LLC for asset protection. Consult with a qualified attorney to discuss your unique situation and what options might be available to you.

 

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by reading this content. Laws and regulations vary by jurisdiction and may change over time. If you need legal assistance, please consult a qualified attorney regarding your specific situation.