A Lady Bird deed, or enhanced life estate deed, allows property to pass automatically to one or more designated recipients at death without the need for Florida probate. The process begins by a grantor signing a deed to a grantee, but retaining the right to sell, use, and otherwise manage the property during the grantor's lifetime. Upon the grantor's death, the grantee files the grantor's death certificate in the land records, serving as proof of death, and the property then passes directly to the grantee without the need for probate.
Advantages of Lady Bird Deed
A major benefit of using a Lady Bird deed rather than a traditional life estate deed is the retention of authority over the property during the life of the grantor. While a traditional life estate deed allows the grantor to use the property during his life, the grantor loses the option to change his mind. Once a traditional life estate is conveyed, the grantor may not sell, mortgage, convey, gift, or otherwise terminate the interest of the remainder beneficiaries without the consent of the grantee.
While a Lady Bird deed is similar in the sense that it allows the grantor to convey a future interest in the property and maintain a life estate, the Lady Bird deed also has the added benefit of maintaining complete control of the property during the grantor's lifetime. The grantor may sell, use, and mortgage the property during his lifetime without requiring consent of the remainder beneficiaries. Also, while the grantor of a traditional life estate deed may have to pay gift taxes for transferring the remainder interest, the grantor of a Lady Bird deed does not. This is so because the grantor retains the right to cancel the remainder interest conveyed to the beneficiary.
Maintaining Eligibility for Medicaid Benefits
It is also important to note that, generally, a traditional life estate deed triggers a five year waiting period for Medicaid benefits. However, an added benefit of using a Lady Bird Deed is that the execution of such a deed is not be considered a transfer of ownership (i.e., a gift) for purposes of applying for Florida Medicaid benefits. Using a Lady Bird deed in combination with the grantor's expressed "intent to return" to the property after being taken to nursing home, or the retained residence by their spouse, can have the advantage of avoiding the five year penalty period because the gift can always be revoked.
Tax Consequences of a Lady Bird Deed
There are no tax consequences to an enhanced life estate deed as there is no completed gift for estate tax purposes. This means that upon your death, the property will be distributed to the beneficiary with a step-up in basis, meanin the heirs will now be able to sell the property tax free. Also, the grantor gets to maintain their homestead for property tax purposes.
Home Refinance Issues
While the enhanced life estate deed will generally allow you to re-finance, sell, give away, etc., your home without the joinder of the grantee(s), some banks/lenders will not allow a mortgage on property where an enhanced life estate deed has been done. So if you ever think about refinancing your home, an enhanced life estate deed may not be for you. Of course, a real estate attorney can always fix the problem, but it will be frustrating when you are refinancing your home, for instance, and the lender will not allow the re-finance as you previously created an enhanced life estate deed.
Learn More About Lady Bird Deeds
If you want to learn more about Lady Bird deeds, we have more information here.
You may also want to consider creating a revocable living trust in order to avoid probate, which is generally a better way to avoid probate under most circumstances.