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Is a trust or lady bird deed better for bypassing probate?

On Behalf of | Oct 9, 2024 | Estate Planning |

People creating or updating estate plans often focus on vulnerable family members and high-value assets. The oversight of probate are in place to protect assets, but many people prefer to keep their most valuable property out of probate court whenever possible due to additional costs. Trusts can offer some protection from creditor claims depending on state laws and can in some cases diminish the likelihood of estate taxes reducing their legacy.

For many testators, their primary residence is their most valuable asset and therefore the most important consideration in their estate plans. They may want to keep their home out of probate court. There are several different estate planning tools available for those who want to transfer ownership of a home without it passing through the probate courts. Lady bird deeds and trusts are among the most popular options. Which is the better solution for a testator with real property?

Every family scenario is different

The financial circumstances of the testator, their family relationships and even the health of their loved ones may influence whether a trust or a lady bird deed is the best option. Lady bird deeds are also known as enhanced life estate deeds. They allow an individual to grant themselves or a third party the right to stay in the home for the rest of their lives.

After they pass, then the ownership transfers to a different designated beneficiary. A lady bird deed could allow someone to remain in their home throughout their golden years and then have it pass to their spouse or one of their children without involving the probate courts.

It could also allow an individual to give their spouse the right to stay in the home if they remarry and have children from a prior relationship. Their spouse has the security of staying in the home indefinitely, but their children can still inherit the property after the spouse dies.

A trust can be useful in many other situations, including scenarios where a beneficiary has special needs and cannot manage the home on their own behalf. Specific trusts and careful planning can help prevent estate tax complications.

Certain trusts can also prevent creditors from making a claim against the property’s value or forcing its sale during probate proceedings. Different types of trusts provide different protection for property owners. Each option offers benefits and certain drawbacks.

Reviewing personal resources and legacy goals with a skilled legal team can help testators determine whether a lady bird deed or trust is the best way to keep their primary residence out of probate court. The right estate planning tools can help people maximize their legacy and minimize stresses associated with that legacy.