Turner Padget Insights
Life Estate Deeds vs. Joint Deeds: Which One is Right for You?
Posted On February 4, 2025
As an estate planning attorney in Greenville, South Carolina, I often help clients navigate the sometimes-confusing world of property transfers. Two popular options—life estate deeds and joint deeds—come with distinct benefits and challenges. Here’s what you need to know.
A life estate deed allows you to remain in control of your property during your lifetime while ensuring it passes directly to your chosen heir without the need for probate. Think of it as reserving a "front-row seat" to your home while pre-assigning future ownership, bypassing the need to transfer the property through the court system. This option is great for maintaining control and avoiding delays after death. It also provides your remainderman (chosen heir) a “stepped up basis” in the real property value, meaning it will minimize their capital gains taxes if they sell the real property in the future.
For example: let’s say you transfer the home to your remainderman while retaining a life estate. If your tax basis in the home is currently $250,000.00 and the home is worth $1,000,000.00 at your death, the tax basis will step up to that value. Note that the initial deed transfer to the remainderman is a gift that must be reported on a gift tax return. Currently, your lifetime tax-free gifting limit is $13.99 million. Finally, a life estate deed is a valuable tool for Medicaid planning as the real property cannot be subject to estate recovery since after your death, you (or your estate at that point) own no interest in it.
But beware—it’s not easily reversed. Once you’ve created a life estate deed, making changes or selling the real property requires the written consent of all parties named in the deed. Additionally, if you sell during your lifetime, you are only entitled to the value of your life estate and your remainderman is entitled to the remaining proceeds. You will not pay capital gains tax if you reside in the house. However, if your remainderman does not reside in the house, they may have to pay capital gains on their portion of the proceeds.
A joint tenant with rights of survivorship deed creates shared ownership where all named parties are equal owners of the real property during their lifetimes. That means each person on the deed shares in the property expenses - taxes, maintenance, and upkeep. When one owner passes, the property automatically transfers to the surviving owner without probate. This option works well for spouses or close family members who intend to share real property responsibilities during their lifetimes. However, it can complicate things if relationships sour or financial situations change.
To sell real property owned this way, all co-owners must consent in writing and are owed a portion of the proceeds equivalent to their interest in the property. If you sell during your lifetime, you will not pay capital gains tax if you reside in the house. However, if your loved one / co-owner does not reside in the house, they may have to pay capital gains on their portion of the proceeds. There is no “stepped-up basis” after a co-owner’s death, either, and owning a joint interest could negatively affect Medicaid qualification.
Choosing between these two tools often depends on your goals. Are you looking to streamline inheritance for your kids while staying in control of your home? A life estate deed might be your best fit. Want shared ownership with someone you trust? A joint deed could work better.
Ultimately, estate planning is about creating peace of mind. If you’re unsure which option suits your situation, I’m here to help you make a confident, informed decision. Let’s talk about preserving your legacy—and your peace of mind
Subscribers to South Carolina Lawyers Weekly can read Jessica’s column here.
Jessica Ferguson is an associate attorney in the Firm’s Greenville, SC office. She is part of the Estate Planning & Probate Practice Group. Jessica focuses her practice on estate planning and probate, helping individuals and families protect their assets, navigate estate administration, and resolve probate disputes.
