Estate planning can be complex, especially when you have different types of assets you are trying to protect for your loved ones, including real estate, bank accounts, and personal property. You might also have a goal to avoid the probate process.
Lady bird deeds can be an integral part of your estate plan that allow you to transfer property in a cost-effective and simple manner. Here is everything you need to know about Lady Bird deeds and how they can benefit your estate.
What Is a Lady Bird Deed?
A Lady Bird deed or beneficiary deed is a deed that allows the current owner of property to transfer ownership of the property to someone else. Unlike other types of deeds, a beneficiary deed does not immediately go into effect after it is recorded. Instead, it only takes effect after the death of the grantor. A beneficiary deed can be revoked at any time before the owner’s death.
Other Names for Lady Bird Deeds
Lady Bird deeds go by various names in different jurisdictions, including:
- Ladybird deeds
- Beneficiary deeds
- Transfer on death deeds
- Enhanced life estate deeds
Situations When You Might Want a Lady Bird Deed
There are several situations when you might want a Lady Bird deed in place, including:
Health Concerns
Sometimes the need for a Lady Bird deed arises because of a sudden health change. You or a loved one may be facing the need for long-term care in a nursing home and may need to qualify for Medicaid. However, you might not know how your real estate may impact your Medicaid benefits.
Future Planning
You might be looking to plan ahead, Lady Bird deeds are a cost-efficient way to transfer property after your death. If you already know who you want to inherit your property (such as your spouse or child), you can take care of the work now and prepare a deed in their favor.
Since the deed won’t go into effect until after your death, you won’t have to worry about transferring any current ownership rights or responsibilities to the beneficiary. Additionally, you likely won’t need to worry about Medicaid’s five-year look-back period. You will also have the flexibility of changing your mind (and the deed) later if things change.
Tax Advantages
Sometimes when you sell or transfer property, you may incur taxes on it. However, Lady Bird deeds are not considered a gift because you do not transfer the property until your death, so you can potentially avoid state gift tax or federal gift tax liability. Also by avoiding a transfer of your property while you’re alive, our beneficiaries will benefit from a step-up-in-basis, which will provide a meaningful tax savings for appreciated real estate.
How Lady Bird Deeds Work and How to Create a Lady Bird Deed
The way LadyBirds work can differ for each state, so let’s look at how a Lady Bird deed in Florida would work as an example.
A Florida Lady Bird deed is a legal document that transfers property after the grantor’s death and avoids the probate process. It is also known as an enhanced life estate deed in Florida because it provides enhanced powers for the current owner of the property.
With a Florida Lady Bird deed, the current property owner can continue to live in the property and use it as they see fit. After their death, the property automatically transfers to the beneficiary named on the deed.
The following are required aspects of a valid Florida Lady Bird deed:
| Requirement | What It Is |
| Grantor | The grantor is the current owner of the property. The grantor is dividing their interest in two: a life estate and a remainder interest. |
| Enhanced life estate | An enhanced life estate provides the grantor’s power to control the property during their lifetime. The grantor becomes the life tenant. The grantor has the right to sell, convey, lease, mortgage, or otherwise control the disposition of the property without permission from the remainder beneficiary. |
| Remainder beneficiary | Remainder beneficiaries or remaindermen are those who will inherit the property after the grantor’s death. Remaindermen do not have any right to use, occupy, or collect income generated by the property during the grantor’s lifetime. |
| Legal description | A legal description of the property is the specific description that identifies the property in the public record. This is not the mailing or physical address. It is a description of the actual land. |
| Homestead property provision | If the property is the grantor’s homestead, there should be a statement that the life tenant is reserving their homestead rights. |
You can look at sample Florida Lady Bird deeds to get a sense of the type of information and format of a Lady Bird Deed. The required elements include:
- The date the deed was created
- The name of the grantor
- The name of the grantee
- The grantor’s address
- The grantee’s address
- The legal description of the property
- A statement that consideration was given for the property
- A statement that the grantor is transferring their interest in the property and the transfer is effective at the time of the grantor’s death
- A statement the grantor is retaining a life estate in the property
- If the property is the grantor’s homestead, a statement that the grantor is preserving the homestead exemption
- If there are multiple beneficiaries, a statement about how the co-owners will hold title
- Grantor’s signature
- Witness signatures
- Notary signature and stamp
The deed must meet the specific font and format requirements required by Florida law. You can also consult an estate planning attorney for legal advice about how to create
States that Allow Lady Bird Deeds
Not all states allow beneficiary deeds or Lady Bird deeds. Some states do not permit these deeds because title insurance companies are unable to insure the title of such deeds. States that permit some type of beneficiary deed include:
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- District of Columbia
- Florida
- Hawaii
- Illinois
- Indiana
- Kansas
- Maine
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Mexico
- North Dakota
- Ohio
- Oklahoma
- Oregon
- South Dakota
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Life Estate Deeds vs. Lady Bird Deed
Lady Bird deeds are often compared to life estates, but they are very different. A traditional life estate deed lets the grantor continue to live on the property during their lifetime. The grantor holds a life interest but only until the time of their death. After the grantor’s death, the remainder beneficiary has a real ownership interest in the property and they may use the property as they like.
With a life estate, the grantor has to be concerned with the interest of the remainder beneficiary. The grantor cannot handle the property as they see fit. They may require the remainder beneficiary’s approval for decisions related to the property.
In contrast, with a Lady Bird deed, the grantor has complete and total ownership of the property. The beneficiary has no current ownership interest in the property, so they have no authority to control the property or dictate the terms related to the property. The grantor can change the beneficiary as they see fit, sell the property, mortgage it, or make other decisions regarding it without needing consent from anyone else.
Advantages of a Lady Bird Deed
Some of the advantages of Lady Bird deeds include:
- Probate avoidance – A person’s home is often their most valuable asset. Using a Lady Bird deed helps remove this valuable asset from the probate estate, which may help avoid probate entirely or at least reducing the cost.
- Medicaid planning – Another advantage is that using a Lady Bird deed may assist with Medicaid planning. Lady Bird deeds do not change any current ownership interest, so there is no immediate gift that is given. (There is a full discussion on this subject later,)
- Cost efficiency – Using a Lady Bird deed is often much less costly than other methods, such as setting up a revocable living trust. This cost savings benefits loved ones, who can receive a bigger inheritance when costs are saved.
- Simplicity – Lady Birds are simple in comparison to creating revocable living trusts or other more complex estate planning tools.
- Revocability – A Lady Bird deed does not transfer any immediate ownership interest in real property. Instead, the grantor’s interest only transfers upon their death. This allows the grantor to freely revoke the deed as they see fit.
- Flexibility – Revocability is just one way that a Lady Bird deed offers flexibility. The grantor can change the beneficiary as they see fit. They could also decide to sell the property, which would simply replace the Lady Bird deed with a new one.
Disadvantages of a Lady Bird Deed
While Lady Bird deeds certainly offer significant advantages, they also have some drawbacks, including:
- No protection from creditors – Unlike with property that is put in certain types of trusts, Lady Bird deeds offer no creditor protection. This could mean that a creditor from the original owner may place a lien on the property, thereby reducing the value of the property for the loved ones who eventually inherit the property.
- Less control than alternatives – A Lady Bird deed does not limit the ownership rights of the beneficiary once they receive the property like a revocable living trust might. Therefore, the new owner may take actions that are contrary to the current owner’s intent, such as immediately selling the property or renting it out.
- Minors cannot inherit – A revocable living trust can hold property for the benefit of minor children, but minor children cannot inherit real property outright. So if a Lady Bird deed becomes effective during the child’s younger years, a legal guardian would need to be appointed to manage the asset on the child’s behalf, which could be expensive and lead to unanticipated consequences.
- Ambiguity – Lady Bird deeds could create ambiguity. If there is more than one owner of the real property, the Lady Bird deed might state that the transfer of ownership does not occur until after the last surviving grantor’s death. By the time this occurs, one or more beneficiaries could have predeceased the grantors, so it may be confusing as to who should inherit the property. This could also lead to problems with the title if clear ownership is in question.
- Expenses – The homeowner remains liable for expenses related to the home, such as insurance, property taxes, utilities, and so forth. When the homeowner signs a quitclaim deed over to loved ones, they may handle such expenses because they become the new and official owner.
Lady Bird Deeds and Medicaid
Lady Bird deeds are often discussed in relation to Medicaid. Medicaid eligibility often relies on showing that the applicant meets the strict income and asset guidelines. Part of this process involves a look-back period in which Medicaid representatives see if the applicant has given away property for less than fair market value in order to qualify for Medicaid benefits.
When a person signs a quitclaim deed over to loved ones or otherwise transfers real property, they may jeopardize their Medicaid eligibility if the transfer occurred during the look-back period. The same is true of a life estate because the grantor gives up part of the value of the property by creating a remainder interest in the property and the remainder beneficiary has ownership rights in the property. However, a Lady Bird deed does not convey any current interest in the property, so it does not negatively impact the homeowner’s eligibility.
Generally, an applicant’s homestead property is exempt from the very low Medicaid asset limits. However, the applicant must have an intent to return to the home if they move into a nursing home.
Lady Birds may or may not affect Medicaid estate recovery, depending on state law. After a Medicaid recipient dies, the state may try to recover expenses for long-term care by making a claim against the recipient’s probate estate. In some states, a Lady Bird deed can protect the home from Medicaid estate recovery because the property transfers automatically, outside the probate process.
However, some states use expanded Medicaid estate recovery. This allows recovery of assets that are not limited to property that goes through the probate process. In these states, Lady Bird deeds would not protect the home from Medicaid estate recovery.
There may be additional ways to protect the home from Medicaid estate recovery, such as showing that it would not be worth the cost of pursuing recovery or showing that estate recovery would cause a hardship, such as if a disabled child or spouse still lives in the home.
Takeaway
A Lady Bird deed transfers property in a simple and cost-effective way after your passing. However, there are benefits and drawbacks you should consider before using this type of deed as part of your estate plan.