Planning for the future is never easy, especially when it comes to figuring out the best way to preserve your legacy and provide for your loved ones. Fortunately, there are a broad range of legal strategies that can be tailored to your needs and vision. One option well worth considering is the “Lady Bird” Deed, which you may also know as the Enhanced Life Estate Deed.
The Basics of the Lady Bird Deed
Available in just half a dozen states, including Florida, the Lady Bird Deed allows property to pass automatically to your designated recipients upon death—without the time and expense of probate, which is a court process that requires various formalities and protocols (such as appointing an executor for your estate, filing your Last Will and Testament, and so on).
The process of setting up a Lady Bird Deed begins like any other deed: the grantor (i.e., the person transferring their ownership interest) signs a legal document (i.e., the deed) conveying their real property title interest to a grantee (i.e., the future interest holders, or remaindermen). The key distinction is that the grantor retains the right to sell, use, and otherwise manage the property for as long as they live. Upon the grantor’s death, the property passes directly to the grantee(s) through the filing of the death certificate in the public records—no probate is required.
Advantages of a Lady Bird Deed
At first glance, a Lady Bird Deed does not seem all that different from the typical Life Estate Deed, which similarly allows the grantor to convey property that they can continue to use during their lifetime (known as the “life estate”). However, one key difference with a traditional Life Estate Deed is that the grantor loses the option to change their mind. Once a traditional Life Estate Deed is executed, the grantor cannot sell, mortgage, transfer, or otherwise terminate the arrangement unless the grantee (i.e., future interest holders) consents. Hence why the Lady Bird Deed is also known as the “Enhanced” Life Estate Deed.
Therein lies a key advantage of a Lady Bird Deed: not only can the grantor convey a future ownership interest in the property and maintain a life estate, but the Lady Bird Deed brings the added benefit of giving the grantor complete control of the property for as long as they live. You may sell, use, and mortgage the property without needing anyone’s consent or approval.
Tax and Medicaid Benefits
Moreover, while the grantor of a traditional life estate deed may be required to pay gift taxes for transferring their interest, the Lady Bird Deed prevents any such obligation by the grantor, since they retain the right to cancel their conveyance to the grantee. In other words, you have the full right to change your mind about the transfer.
Since the Lady Bird Deed allows the life estate holder to cancel their conveyance at any time during their life, the transfer does not count as a gift for estate tax purposes. Furthermore, upon the grantor’s death, the property is distributed to the grantee as a “step-up in basis,” meaning that the heirs can sell the property and the property for tax purposes is valued at the value at the time the grantor died. Note, it is important to consult with your accountant before creating a Life Estate to discuss any possible gift tax liability.
The Lady Bird Deed also does not trigger the five-year waiting period for Florida Medicaid benefits that applies to gifts, since the ability to revoke the transfer does not qualify the deed transfer as a gift. Note, however, that it is important to consult with your Medicaid provider and confirm this information prior to signing a Lady Bird Deed.
If the property is the primary residence of the grantor, the Lady Bird Deed also allows the grantor to maintain the residence as their homestead, which under Florida law gives you the benefit of various tax savings and creditor protections.
Refinancing Implications
Despite all these benefits, there is one minor caveat with the Lady Bird Deed: While you will generally be able to refinance the life estate without needing the grantee’s approval, some lenders do not allow a mortgage on a property that is subject to a life estate. Thus, it is important to let your lender know early in the refinance process that you currently hold title via a Lady Bird Deed.
Consult with Our Legal Experts about Lady Bird Deeds
To get the most out of this versatile legal instrument, or to determine whether it is the right choice for your goals, it is imperative that you consult with an experienced Florida real estate and estate planning attorney. Our firm has helped hundreds of clients create estate plans that are tailored to their unique circumstances and desires while minimizing the time and expense of fulfilling their legacy.
For a free consultation and to learn more about the Lady Bird Deed or our estate planning services generally, please call us at (800) 604-1871 or send an email to Info@JFRealEstateLaw.com. We provide probate, title/closing services, and real estate legal services throughout the State of Florida.