Dig up the lilac.

To improve the soil add compost.

To kill the grass cover the pile with plastic for a few weeks to smother and cook it. An excellent way to make compost from unwanted sod is to pile the sod on a plastic sheet and when finished, wrap the plastic over the sod and leave in the sun for a month. Poof, you have compost.

i have two words for you: lasagna gardening.

i did it in a bed that was nothing but leftover construction material. Now, the soil's the best in that area.

Here are the basics: leave the grass as it is. layer it with newspaper (it will kill the grass/weeds and work wonders for the soil). then add anything you would to a compost pile: sand, soil, kitchen waste, peat moss, manur, coffee (i went to Starbucks 2/3 times a week), garden waste, etc etc. i even threw in the weeds. basically, the more the better.

then let the winter do the work. next spring, you'll have great soil.

if you're impatient like me, you can even plant in it now.

Just don't forget to top a lasagna bed with mulch. I find it works well to keep adding layers until hard frost (I like to add a newspaper layer between every couple inches of other stuff); but after the weather freezes, cover the pile with at least 4" mulch... if your zone has frigid winters more mulch is better, to permit the microbes and earthworms to do their work overwinter.

:) didn't think it would be that easy, did ya? (:

but they've got it right- this is just doing what mother nature does, faster.

there will be some wheel-barrow and shovel work to do in the spring (to terrace the pile, you have to inset the stones/blocks/lumber/whatever a bit, or it will just fall apart in a year or two)

but I add about 2" of good humus a year to my garden- which is what's left from 8" or so of mulch, grass clippings (I get them from the neighbors who 'do' lawns) and old leaves.

If you decide to cover it with plastic, make sure it is black plastic. I covered some weeds with clear plastic and they grew bigger. It acted like a green house!

Thank you all for your suggestions. That does seem easy. I'd better start diverting my newspapers from the recycling bin :) Now to tackle the lilac ...