Using A Beneficiary Deed In Estate Planning

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Using A Beneficiary Deed In Estate Planning

A beneficiary deed is an estate planning mechanism used by owners of real property to ensure that the title to a piece of real estate will transfer automatically to a new owner upon their own death. These deeds are helpful because, unlike a Last Will and Testament, they allow individuals to avoid having to put their real property through the probate process. Avoiding probate by using a beneficiary deed can be helpful because it may save on tax obligations or make the entire transfer process much easier and less expensive. Each state establishes its own rules for handling beneficiary deeds. Loughlin Law, P.A. may be able to help individuals and families in Florida select the estate planning tools that will work best for their unique situation. Contact our team by calling (561) 677-8384 for more information.

An Overview of Beneficiary Deeds in Florida

Most beneficiary deeds are referred to as “Transfer-on-Death” (TOD) or “Payable-on-Death” (POD) transactions. However, Florida does not have a traditional beneficiary deed that falls under either of these categories. Although the Florida Uniform Transfer-On-Death Security Registration Act permits some other assets, such as bank accounts and retirement funds, to be transferred on death, transferring real property on death with a traditional beneficiary deed is not permitted.

Instead, Florida uses what is commonly referred to as a “Lady Bird Deed.” This deed functions in a manner very similar to that of a beneficiary deed, but has some additional requirements. Specifically, a lady bird deed requires that the current owner have a life estate in the property instead of owning it outright.

What Is a Life Estate?

A life estate allows someone to have all of the rights and obligations of a property while they are living. However, once they pass, the right to the property disappears and usually goes to a third party. The person who holds the life estate generally does not get to determine who receives the property (unless that person is the person who established the life estate). Many life estates are provided from a property owner to a third party.

What Is A Lady Bird Deed?

A lady bird deed sets up a life estate in the property and then designates another person (or several people or entities) to take the property after the current owner passes. The result is extremely similar to a TOD or POD transaction, but there are some important differences.

A lady bird deed gives one person all of the normal rights and obligations they would have if they owned the property outright for the duration of their lifetime. Then, upon their death, it transfers to another person. The life estate operative in a lady bird deed differs from a normal life estate in a couple of key aspects, however.

Normal Life Estates

In a traditional life estate, the person who has the life estate must hold and control the property along with the beneficiaries. For example, the life estate owner must normally consult with the beneficiaries to make any significant changes to the property, such as tearing down a building or making significant improvements to the land. They might also have restrictions on whether they can sell or mortgage the property.

Someone with a life estate generally cannot do anything that might harm the property such that the beneficiaries’ rights are impacted. They hold the property for the eventual benefit of the beneficiaries.

An Enhanced Life Estate Under a Lady Bird Deed

A lady bird deed is a type of enhanced life estate. Instead of having restrictions on the sale or mortgaging of the property, the individual with the life estate can still do virtually anything they would like with the property, including selling it.

The beneficiary in a lady bird deed does not have any property rights while the individual with the life estate is living. Unlike the situation with a normal life estate, under the terms of a lady bird deed the individual who has a life estate does not have any obligation to the remainder beneficiaries.

Benefits of a Lady Bird Deed

Florida’s version of a beneficiary deed, the lady bird deed, has several advantages or benefits, including the following. You may want to consult with an estate planning attorney Loughlin Law, P.A. to learn more about these benefits and whether they might be relevant for your unique situation.

  • Avoids probate. Any type of transfer on death provision will help individuals avoid probate. There can be some tax advantages to avoiding probate, and not having to go through the probate process can be faster and cheaper for beneficiaries. The transfer is virtually automatic and requires very little paperwork to finalize.
  • Less expensive compared to a living trust. A living trust can accomplish many of the same goals as a lady bird deed. However, trusts are more expensive to set up and can require some effort to maintain.
  • Enhanced life estate. Because a lady bird deed is an enhanced life estate, the person holding the life estate has far more rights compared to someone with a normal life estate. They do not have to worry about preserving the property for someone else as they normally would with a traditional life estate.
  • Having a lady bird deed in place is something that can be changed. Unlike an irrevocable trust or outright property transfer, a lady bird deed can be changed at virtually any time. In fact, the life estate holder (who is often the grantor) can sell the property and completely undermine the purpose of the lady bird deed if they choose to do that.
  • Other legal benefits. In Florida, a lady bird deed or beneficiary deed can be out of reach of creditors because it enjoys the homestead exemption. Having the property as a homestead also offers some annual property tax benefits. Further, according to the American Council on Aging, property covered by a lady bird deed generally does not impact eligibility for long-term nursing care under Medicaid.

Beneficiary deeds are also generally easy to set up and maintain, but perhaps the most important benefit is the quick transfer to beneficiaries after the grantor passes.

Get Help From a Florida Estate Planning Attorney

An estate planning attorney will be able to evaluate your situation and help you determine whether a beneficiary deed is a good option for your situation. Florida law provides lady bird deeds as a unique option for a simple transfer on death, and this structure offers a number of other benefits. While a lady bird deed might be a simple solution for some families, it may not be the right option for others. Loughlin Law, P.A. advises Florida families in all walks of life on their estate planning options. Contact our team for more information by calling (561) 677-8384.

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