What Are The Pros, Cons And Who Needs A Lady Bird Deed?

A blue and white model house sits next to a property deed, possibly a lady bird deed, with a pen on top of it.

What Are The Pros, Cons And Who Needs A Lady Bird Deed

One of the most expensive and valuable assets many people have is their home and the land it sits on. Many people want to pass this real estate on to their children or grandchildren when they die. There are many ways this can be done, including through a Last Will and Testament or a trust. One popular method used in Florida is the lady bird deed. Before you decide to use this method, it is a good idea to make sure you have a full understanding of how it works, its pros and cons, and who needs one. If you have additional questions about this real estate transfer method or other estate planning options, call Loughlin Law, P.A. at (561) 677-8384 to schedule a consultation and review your options with one of our experienced Florida estate planning attorneys.

What Is a Lady Bird Deed?

A lady bird deed is one type of life estate that lets the property owner maintain control of the property until their death. When the owner dies, the property automatically transfers to the beneficiary, or the person named on the deed, without going through the probate process. This type of deed is also sometimes called an enhanced life estate deed or ladybird deed.

Florida is one of only five states to allow these deeds, and they are popular because they can be revoked or changed at any time, unlike a standard life estate deed. They are often used to keep property in the family while allowing the owner to be Medicaid-eligible. They may also be used to keep the asset from being taken by the state after the owner dies to recover Medicaid expenses.

How Does a Lady Bird Deed Work?

Lady bird deeds work by dividing the ownership of the home into two parts. The first part is during the owner’s life and the second part is after their death. The owner, called the life tenant, retains control over their property during their lifetime. They can do as they wish with the home, including mortgaging it, renting it out, or selling it. If they sell the home, the lady bird deed becomes invalid.

When the life tenant dies, the beneficiary or beneficiaries, also called remainder beneficiaries, automatically inherit the property. Though this avoids probate, the beneficiary will need to provide the clerk of court in the county where the property is located with a copy of the life tenant’s death certificate. The clerk will then terminate the life estate and transfer the property to the beneficiary. This may save thousands of dollars.

Lady Bird Deed Pros

There are several advantages to lady bird deeds. The most obvious is that the deed avoids probate. Additionally, lady bird deeds are simple, inexpensive, and can be changed at any time. The owner also retains all their rights to use, sell and profit from the property in any way they choose, while also allowing them to maintain Medicaid eligibility and avoiding the property being taken as reimbursement of Medicaid costs after the owner dies.

A lady bird deed can also avoid the Internal Revenue Service’s federal gift tax which may not apply because the deed does not transfer the property until the owner’s death. Additionally, it may also help to avoid a reassessment of homesteaded property. Individuals who are concerned about gift or property taxes when passing on or inheriting real estate may want to speak with an attorney at Loughlin Law, P.A. to get more detailed information specific to their circumstances.

Cons of Lady Bird Deeds

While there are some advantages to lady bird deeds, it is important to consider the disadvantages before deciding to move forward with one. First, a lady bird deed requires very specific language, including a legal description of the property, the grantor’s and beneficiary’s names, reservation of lifetime rights to sell the property and notarization. The deed must also be recorded to be effective. If the beneficiary dies before the owner, it may become uncertain what will happen to the property when the owner dies.

Lady bird deeds also do not protect the property from creditors who may put a lien on the property. This means if the beneficiary decides to sell the property, they may need to satisfy any liens placed by creditors before they benefit from the sale. Finally, when the property transfers to the beneficiary, the property taxes may increase especially if the property was homesteaded by the owner. Florida §193.155 allows a property tax increase of either 3% or the Consumer Price Index (CPI) percent change, whichever is less, on homesteaded properties. When the property transfers to the beneficiary, it is likely to lose homestead status until or unless the beneficiary applies for it.

What Is the Difference Between Lady Bird Deeds and Transfer on Death Deeds in Florida?

Lady bird deeds are Florida’s version of a transfer on death deed. Because Florida has not adopted the Uniform Real Property Transfer on Death Act (URPTODA), transfer on death deeds are not available in Florida. Lady bird deeds are very similar to transfer on death deeds, and in some ways, may be preferable.

One notable difference is that if the actual owners of the home are incapacitated, an individual with power of attorney can sign a lady bird deed on their behalf. This may be helpful in situations where the owner is incapacitated and needs to have the deed in place to qualify for Medicaid.

Who Needs a Lady Bird Deed in Florida?

While anyone can technically use a lady bird deed, there are some situations where it is better suited than others. This type of life estate is often used by single or widowed people who want to qualify for Medicaid. Lady bird deeds are not subject to Medicaid’s five-year look back period, which means individuals can use one to transfer the property to someone else without Medicaid penalizing them, according to the American Council on Aging.

Another time this deed is used may be when the owner has already chosen a particular beneficiary to take ownership of the property. Lady bird deeds may be part of estate planning for single people who want to transfer real estate to a beneficiary after their death while avoiding probate. An estate planning attorney may be able to assist individuals in determining how to handle the transfer of a home.

How Can an Estate Planning Attorney Assist You With Real Estate Needs?

There are several options in Florida for transferring real estate to your loved ones after you have died. Each method has its own advantages and disadvantages. A lady bird deed may be exactly what you need or another option may be better for you. At Loughlin Law, P.A., our knowledgeable estate planning attorneys may be able to review your entire estate and assist you in determining the best way to transfer real estate as well as the rest of your estate. Call (561) 677-8384 to schedule your consultation and learn more.

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