Lady Bird Deeds

A lady bird deed, or enhanced life estate deed, is an estate planning tool that allows a property owner (the Grantor) to transfer his or her real property to one or more beneficiaries (the Grantee) upon death without having to go through the probate process. When the Grantor dies, the Grantee files the death certificate in the public records, and the property passes automatically to the Grantee without probate. The lady bird deed is available in Florida and a few other states such as Texas, Vermont, and Michigan.

A lady bird deed is different from a regular life estate deed in that the Grantor retains a life estate in the property but also retains complete control over the property until death – the Grantor can sell, mortgage, rent, alter, and otherwise manage the property, and change the beneficiary, all without the beneficiary’s consent or joinder.

The Grantor also does not have to pay gift tax for transferring the remainder interest in the property, because the Grantor can cancel the remainder interest conveyed or change the beneficiary. The execution of a lady bird deed is not considered a transfer of ownership for purposes of applying for Florida Medicaid benefits. In addition, the property subject to a lady bird deed retains its homestead status so that it is exempt from the Grantor’s creditors, and the Grantor is able to maintain his or her homestead exemption for property tax purposes.

In addition to the above benefits, another advantage of the lady bird deed is that it minimizes capital gains taxes. When the Grantor dies, the value of the property for tax purposes receives a stepped-up basis. This means that if the Grantee sells the property after the Grantor’s death, the capital gains tax may be reduced because the basis will be the value of the property at the time of the Grantor’s death.

A lady bird deed has the following requirements:

• It must identify the life tenant (Grantor) and the remainder beneficiary(ies)(Grantee);
• It must contain a legal description of the property;
• It must contain language stating the Grantor’s powers – to sell, convey, rent mortgage, etc. the property;
• It must be signed before two witnesses and a notary;
• It must reserve the homestead status in order to keep the homestead exemption.

The lady bird deed should state that the Grantor retains the right to divest or change the beneficiary/remainderman. A new deed is required in order for the Grantor to change the beneficiary/remainderman.

Consult your estate planning attorney to understand how a lady bird deed works in Florida and if such a deed might be a useful estate planning tool for you.