What is a Lady Bird Deed and How Does it Affect My Estate Planning?

As Lady Bird Deeds grow in popularity for Jacksonville residents, it is important to discuss and understand the benefits and limitations of these deeds, as well as how they affect estate planning.

Enhanced life estate deeds, also called Lady Bird deeds, are one tool to transfer ownership of real property at death. This type of deed got its nickname when President Lyndon B. Johnson used one to convey property to his wife, Lady Bird.

Florida Today’s recent article entitled, “Real estate transfers: Is a ‘Lady Bird deed’ right for me?” explains that Lady Bird deeds are a type of life estate deed designed to automatically transfer property ownership upon the death of the original owner to another individual. However, they don’t require the original owner to give up use, control, or ownership of the property while alive.

How Does a Lady Bird Deed Work?

The beneficial receiver of the property upon death doesn’t get any immediate rights or ownership interests in the property. Their consent isn’t needed to sell, convey, or change the use of the property while the original owner is alive. The Lady Bird deed is rendered obsolete if the original owner sells or conveys the property in their lifetime. However, if the original owner passes away, the property subject to the Lady Bird deed is automatically conveyed to the beneficial recipient without needing to pass through probate.

With a traditional Life Estate deed, the original owner must give up control when adding a beneficial recipient. This means the original owner is prohibited from selling, conveying, or encumbering the property without explicit consent from the beneficial recipient. The original owner also can’t change or end a traditional Life Estate deed without consent from the beneficial recipient.

Advantages of a Lady Bird Deed:

1. Properties can be conveyed at death without having to pass through probate.
2. The original owner remains in full control of the property while they’re alive.
3. Recording a Lady Bird deed doesn’t impact the current owner’s homestead protection and exemptions.
4. It’s a simple and inexpensive process to create one.
5. Any property subject to a Lady Bird deed doesn’t violate Medicaid’s five-year look-back period and isn’t subject to gifting taxes or penalties, since the beneficial owner doesn’t immediately possess any ownership rights.

Disadvantages of a Lady Bird Deed:

Although there are merits to using a Lady Bird Deed, it’s not without potential drawbacks. Jacksonville Estate Planning Attorney Bill O’Leary shares his reservations about this deed in his video, stating, “I am not a fan at all.” Some downsides of the Lady Bird Deed include:

1. Title insurance issues. O’Leary provides several examples of these types of issues in his video below.
2. Loss of flexibility to change remainder beneficiaries.
3. Lacks premature death planning if a beneficiary passes away before the owner(s).
4. Lacks incapacity planning.
5. Lacks creditor protection from remainder beneficiary legal or financial interests.
6. Capital gains tax disadvantage if the property is sold.
7. Creates homeowners insurance risks if the remainder beneficiary is not added to the insurance policy.
8. Does not circumvent the Florida statute that requires homestead property to be conveyed first to a surviving spouse or minor children.
9. Does not protect non-homestead properties from any judgment liens issued against the original owner during their lifetime.

How Does a Lady Bird Deed Compare to a Trust?

Instead of putting the house into a Lady Bird Deed, it’s much more sensible to put the house into a trust so that you avoids the unforeseeable challenges related to title insurance, changes or creditor problems of the remainder beneficiaries, or if the property is sold while the owners are still alive.  Learn more about the benefits of a living trust in our article: Living Trusts and How They Help Seniors

If you still have questions about using a Lady Bird Deed or would like to explore different options for protecting your Florida real property, schedule a free discovery call with Team Legacy to discuss your desired outcome and best course of action for your specific situation.