Lady bird deeds and using the step-up basis to avoid capital gains taxes

Robert: Tom, I have a quick claim deed that my parents have said that they are going to prepare for me for a condo that they have over in Volusia County.

Attorney Tom Olsen: All right.

Robert: My mother is 88, my father is 91, and once I get that quick claim deed, I'm looking at possibly doing a life estate for my wife and daughter so they get added to the property. Any suggestions or things that I need to look out for?

Tom: Robert, how much do you think that condo is worth?

Robert: About $270,000.

Tom: What do you think your parents paid for it?

Robert: About $40,000.

Tom: Robert, there is a great tool for avoiding probate here in the State of Florida called a ladybird deed. If your parents would do something different, this would be my recommendation. Your parents would leave that condo in their name only, to avoid probate, rather than quick claiming it to you, they would do a ladybird deed. That ladybird deed would state that as long as one or both of them are alive, it is their condo, but upon their death, that condo would automatically go to you. No headaches, no hassles, no probate. We are managing to avoid probate on it.

The advantage of that, Robert, is this, is that if they do the ladybird deed when they pass away, your basis for capital gains tax purposes will be the value at the date of their death. If they do the ladybird deed and they both pass away and you inherit it at that moment in time, if it's worth $300,000 and you sell it for $300,000, you're going to pay no capital gains taxes. If they do this quick claim deed, as you're speaking of, as a tool to avoid probate, and again, we're recommending not to do it this way, you will inherit their basis of $40,000, so that if you turn around and sell it somewhere down the road for $300,000, you're going to pay capital gains on your $260,000 profit.

Now, with that said, Robert, is there a reason why we wouldn't just get back to the basics and do a ladybird deed instead of a quick claim deed?

Robert: Both of my parents had their mobility challenged, and to get them to a lawyer's office to sign the ladybird deed and to get an attorney to get their acknowledgment that they want such a deed, it was very difficult and time-consuming, but it would certainly be worth $200,000 and I had thought about a ladybird deed.

Tom: Robert, there are mobile notaries where your parents could potentially sign this deed without ever leaving their home. Let's assume we get by step number one, and that is one way or another, Robert, we get it into your name. Now, we need to think about how do we avoid probate when Robert passes away. You've already told me that if you passed away, you'd want your wife and your daughter to have a life estate in it, the right to use that condo during their lifetime. What would happen when they both pass away, Robert?

Robert: Probably go to the state because we don't have any other relatives after them.

Tom: Robert, I think what you really mean is that, Robert, someday when you pass away, you want your wife and or your daughter to own it and they can do with it as they please.

Robert: Correct.

Tom: Robert, what we might typically do, Robert, would be-- By the way, is your daughter, is she the daughter of your wife as well?

Robert: Yes, she is.

Tom: Robert, what I would suggest that we might do is to have your parents do a ladybird deed, that when they pass away, this home will belong equally to you and your wife. Once they've passed away, and you and your wife own this condo, then you do a ladybird deed that states that when you both pass away, it would go to your daughter. I think that'd be a great plan for you guys, Robert.

Robert: That sounds like a way to go. Is there a way for me to speak to your wife off the air to get a couple of contact points?

Tom: Robert, my wife is on the air with me right now and I want to keep her here. I'm sorry, I'm not willing to share right now. Chrissy, tell me how he might reach you next week.

Attorney Chris Merrill: Robert, if you write this number down, you can text me even right now while we're on the air, and then we can text back and forth and coordinate. I'm happy to do that.

Robert: I like that plan.

Chris: My number is 321-207-8384, and then just acknowledge that your name and I'll text you right back even while we're on the air and we can get a conversation going.

Robert: Very good. Thank you so very much.

Chris: Thank you so much, Robert.

Tom: I'll text you right away. Have a good day.

Chris: You too. Bye-bye.

Tom: Chrissy, I hear Robert's concerns about parents not being able to travel to a lawyer's office, and again, there are such things as mobile notaries, but for a while, I know that you were notarizing documents via a Zoom call. Tell me, what is that process called? I've forgotten now.

Chris: It is an e-notarization that you are able to do on certain documents and here's the-- It's definitely something that's possible. However, the reason why a lot of people prefer not to do it is because if Robert's parents are in front of the computer and doing everything, they have to be able to authenticate themselves in a short time and answer questions. That is where it's been really holding people up. When we say authenticate meaning the system will give you several questions that you have to answer about maybe where you lived 25 years ago. It all has to be done in a certain time frame. If you fail that, you cannot proceed with the online.

Tom: This remote notarization, where somebody's in a different place than you as a notary, and you're doing a Zoom call with them, it's available, it's relatively a new process, but it's a pain, hard process.

Chris: It's a challenge because of the authentication.

Tom: It would be much easier that we prepare these deeds for Robert and either Robert or we arrange for a mobile notary to go to mom and dad's house. This is a common thing. Mobile notaries are out there. They can come right to you and you show them your driver's license. They notarize your signature, we're golden.

Chris: Correct, and then witnesses too, but they again, because that's what they do and they're used to doing it, is something that is simpler typically for mom and dad. You're dealing with a professional. That's what they do and they're coming to you and you're doing it right there again at your home seems to be, that is again, easier process than trying to deal with authentication.

Tom: Chrissy [audio cut]

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