If your real estate is in one of the 38 states where a transfer-on-death deed is not allowed, then you have the following four options for nonprobate transfer of real estate to your heirs.  Information in the table shown below is based on our review of various websites of lawyers specializing in estate planning and is not legal advice.  Although do-it-yourself legal forms are available online for each of the four options (from U.S. Legal Forms, for example), the drawbacks and complexity of the four options may warrant consulting an attorney.

 
    What it does: Drawbacks/Comments:

 

 

Option 1   

 Warranty Deed or Quitclaim Deed Immediately transfers to your heir the ownership and control of your property.

  • You may have to pay a large gift tax now for transferring ownership.

  • Your heir may have to pay a large amount of capital gains tax when they sell the property.

  • You may lose "homestead" protection from lawsuits against your heir.

  • You will need permission from your mortgage company to make the transfer (and they may charge a fee).

Option 2   

 Retained Life Estate Deed Same as Option 1, but includes language that gives you the right to use the property for the rest of your life.   
  •  Same as Option 1.

Option 3   

 Enhanced Life Estate Deed (or a special case called a "Ladybird Deed") Same as Option 2, but contains special language that eliminates some of the drawbacks of Option 2.
  • Accepted in only Florida, Texas, North Carolina, and possibly other states.
  • The effectiveness of this special language has not been fully tested in the courts.
  • The lack of standard forms for these types of deeds may warrant their preparation only by an attorney knowledgeable in estate planning (do-it-yourself form). 

Option 4  

 Living Trust A legal document that creates a legal entity that holds your property for your benefit until you die, and then automatically transfers the property to your heirs without going through probate. 
  • Although the living trust is widely used and can be an effective method of avoiding probate, most people do not get around to creating a trust because it requires a visit to a lawyer knowledgeable in estate planning and the preparation fee typically is $500 to $1,500 for small estates (less than $500,000 of assets).  Trusts may not avoid all taxes and can be challenged like a will.

 

    

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