Hurwitz Fine Trusts & Estates attorneys Melissa A. Pezzino and Lauren Meksraitis-Elliott recently presented a webinar examining estate planning strategies for transferring real property, with a particular focus on New York and Florida. The program explored the differences between Life Estate deeds, Transfer on Death deeds, and trusts, as well as important considerations involving Medicaid eligibility, probate avoidance, and property ownership across multiple states.
Here are 10 key takeaways for property owners, families, and professionals involved in estate planning:
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Life Estate Deeds and Transfer on Death Deeds Offer Different Levels of Control
Both Life Estate deeds and Transfer on Death (TOD) deeds can allow real property to pass to beneficiaries outside of probate, but they differ significantly in how ownership interests are transferred. A Life Estate deed establishes a present ownership interest for the remainder beneficiary while allowing the life tenant to retain possession and use of the property during their lifetime. A TOD deed, by contrast, allows the owner to retain full ownership and control until death, when the beneficiary's interest takes effect.
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Transfer on Death Deeds Provide Flexibility for New York Property Owners
New York authorized Transfer on Death deeds in July 2024, providing another option for transferring real estate without probate. Unlike a traditional Life Estate deed, a TOD deed allows the property owner to change beneficiaries, sell the property, or mortgage it without obtaining the beneficiary's consent. This flexibility can make TOD deeds attractive for individuals who want to simplify the eventual transfer of property while maintaining control during their lifetime.
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Life Estate Deeds Can Be Valuable Medicaid Planning Tools
A key advantage of a Life Estate deed is that the transfer of the remainder interest generally occurs during the owner's lifetime. This distinction matters for Medicaid planning because transfers made for less than fair market value may be subject to the applicable five-year look-back period. When properly structured and completed sufficiently in advance, a Life Estate deed may help protect the transferred remainder interest from Medicaid estate recovery.
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Avoiding Probate Does Not Necessarily Mean Protecting Assets from Medicaid
One of the webinar's central distinctions was that probate avoidance and Medicaid asset protection serve different purposes. Although a TOD deed can transfer property outside of probate, it generally does not create a completed lifetime transfer for Medicaid planning purposes. As a result, the property may remain subject to applicable Medicaid estate recovery and creditor claims. Selecting the appropriate planning tool requires considering both probate and long-term care objectives.
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Revocable and Irrevocable Trusts Serve Different Estate Planning Goals
Revocable living trusts can help avoid probate, maintain privacy, and provide continuity in asset management while allowing the grantor to retain control and make changes. However, assets held in a revocable trust generally remain available for Medicaid eligibility purposes. An appropriately structured irrevocable Medicaid Asset Protection Trust may offer additional protection, but it involves restrictions on access to principal and is subject to applicable transfer rules and look-back periods.
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The Five-Year Medicaid Look-Back Period Makes Early Planning Essential
Transfers involving Life Estate deeds and Medicaid Asset Protection Trusts can trigger Medicaid's 60-month look-back period for institutional long-term care eligibility. Transfers made during this period may result in a period of ineligibility. Because each transfer or additional contribution to a trust may have its own effective date, planning well before long-term care is needed can significantly affect the available options.
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Owning Real Property in Multiple States Can Create Additional Probate Proceedings
When someone owns real estate outside their state of residence, their estate may require an ancillary probate or administration proceeding in the state where the property is located. For example, a New York resident who owns a vacation home in Florida may require estate proceedings in both states. These additional proceedings can involve separate attorneys, filing fees, creditor notification requirements, and timelines, increasing the administrative burden on surviving family members.
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Florida's Lady Bird Deeds Offer an Alternative for Transferring Property
Florida recognizes enhanced Life Estate deeds, commonly known as Lady Bird deeds, which function similarly to New York's Transfer on Death deeds. These deeds allow property owners to retain control during their lifetime while designating who will receive the property upon death. For individuals who own Florida real estate, this approach may help avoid ancillary probate proceedings while preserving flexibility to sell or otherwise transfer the property.
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Trusts Can Simplify Estate Administration Across Multiple Jurisdictions
A properly funded revocable living trust can hold real property located in multiple states, potentially eliminating the need for separate probate proceedings involving those properties. Trusts can also establish instructions for distributing assets, managing investments, and providing for beneficiaries, including minor children. Unlike deeds that generally address individual properties, trusts offer a broader framework for coordinating the transfer and management of an estate.
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The Right Estate Planning Strategy Depends on Individual Priorities
No single estate planning tool is appropriate for every property owner. Life Estate deeds may offer advantages for Medicaid planning but can limit the owner's ability to make changes without involving remainder beneficiaries. TOD deeds provide greater flexibility but generally do not offer the same Medicaid planning benefits. Trusts can address multiple assets and more complex distribution goals but require additional planning and proper funding. The appropriate strategy depends on the owner's priorities, including control, asset protection, probate avoidance, cost, and family circumstances.
Transferring real property involves more than determining who will inherit it. Effective estate planning requires careful consideration of ownership rights, Medicaid eligibility, probate requirements, and the laws of each state where property is located. Understanding the differences between Life Estate deeds, Transfer on Death deeds, and trusts can help property owners select strategies that protect their interests while reducing potential complications for their beneficiaries. Early, coordinated planning is especially important for individuals with property in multiple states or concerns about future long-term care expenses.
