Its Colorful History.
It all started with the slickest former legal secretary, former elementary school teacher, and Former President of the United States, to ever come out of Gillespie County Texas, Lyndon Baines Johnson. The same Lyndon Baines Johnson who first entered College at age 15, took a two-year sabbatical to work as a legal secretary for his cousin who was a lawyer in California, before returning to graduate from Southwest Texas State Teachers College and, ever so briefly, teaching elementary school before entering politics. Jumping forward years later, after his days in politics ended, Lyndon Johnson turned his attention to planning his own estate for himself and his wife, Lady Bird Johnson, and the conveyance he created specifically to avoid death taxes in Texas. That document was a “deed” unlike any deed ever before it and it managed to survived scrutiny by the courts. It has come to be known today, named in honor of Lyndon’s wife, as the “Lady Bird Deed.”
What is a Lady Bird Deed?
A Lady Bird Deed is also called an Enhanced Life Estate Deed. Whether your attorney uses the term “Lady Bird Deed” or “Enhanced Life Estate Deed” they are the same thing. In short, a Lady Bird Deed allows property owners (Grantors) to retain complete control of their property during their lifetime while naming the beneficiaries (remainderman) who will receive the property upon the death of the owner. It is similar to “inheritance,” but it bypasses probate. It also protects your Homestead Tax eligibility and satisfies Florida Medicaid eligibility.
It is not treated as a taxable transfer and enables the owner to sell or change beneficiaries at the owner’s discretion and DOES NOT require the beneficiaries’ agreement or consent to the change. This is one big difference between an ordinary Life Estate and a Lady Bird Deed. An ordinary Life Estate Deed cannot be changed by the Grantor and requires the Grantees (persons who received the property) to make any changes … once Grantees “own the property” they may not want to change the Life Estate Deed for any number of reasons. A Lady Bird Deed on the other hand does not immediately transfer title to the recipients, making it revocable and it can be changed at any time. The property owner can deed the property back to themselves or transfer the property to a third party or change the recipients to the Lady Bird Deed, which effectively cancels out the existing Lady Bird Deed and divests the existing remaindermen of their interest.
Is it the same as a “Life Estate Deed?”
No, but it is a type of “Life Estate Deed.” Ordinarily, a “Life Estate Deed” does not have the enhanced powers and features of an Enhanced Life Estate Deed. For instance, an ordinary Life Estate Deed is an immediate transfer of the owner’s property and the only thing the owner keeps is the right to live in and on the property for the rest of their natural life. While that sounds similar, the ordinary Life Estate Deed has tax implications that the Enhanced Life Estate Deed is specifically designed to avoid.
I have a lake house in Tennessee, can I use it there?
Sadly no. While it has grown in use, the Lady Bird Deed/ Enhanced Life Estate Deed concept has only been adopted in five states: Florida, Michigan, Texas, Vermont, and West Virginia. Even if you were to try and record a Lady Bird Deed in a state such as Tennessee, the enhanced reservation of ownership rights would not be recognized in Tennessee and the deed would either fail outright reviving the prior deed or be treated as an ordinary Life Estate Deed.
Tell Me More About these Lady Bird Deeds. How Do They Avoid Probate?
Unlike an ordinary Life Estate Deed which immediately transfers an ownership interest to the designated recipients, a Lady Bird Deed transfers the remainder interest in real property to designated recipients (“Grantees”) immediately upon the Grantor’s death by operation of law - this avoids probate and saves time and money. Because this transfer happens at the moment of death, it “reserves” for the Grantor full ownership and an enhanced life estate which merge at the moment of death in a transfer to the remainderman. The “enhancement” means the Grantor retains full control over the property, including the right to sell, lease, or revoke the deed and all without the consent or even knowledge of the Grantees. The Lady Bird Deed avoids the need for probate because any remainder interest was already dealt with by the Lady Bird Deed.
Another distinction is, under probate, certain tax and lien protections ONLY pass to “heirs,” as defined by the Probate Code and Florida Constitution. Adding a non-heir (such as your best friend) as a beneficiary receiving your real property in probate can strip away your Homestead creditor protections and expose some if not all of the property to creditor claims. A Lady Bird Deed avoids this by operating outside of probate.
Good, I have lots of properties ….
Well, not so fast. A Lady Bird Deed has its limitations. You could call a Lady Bird Deed a type of “poor man’s trust.” It works best for simple estate plans where your assets are limited, and your primary goal is to transfer your home while avoiding the expenses of probate. If you have multiple assets or properties, especially where you hold properties in small single member corporations or limited liability companies, a formal trust is a much better tool for managing those multiple assets.
Creating the Lady Bird Deed.
Like any deed for real property, the Lady Bird Deed must be in writing BUT it must include very specific language. Because there are technical requirements property owners interested in utilizing a Lady Bird Deed should consult an attorney. An improperly prepared Lady Bird Deed may render it null and void and title to the property may revert to a prior deed, it may impact inheritance taxes and create other unintended consequences.
A Quick Look at Advantages & Disadvantages of a Lady Bird Deed.
Advantages:
- Relatively easy to set up with the assistance of an attorney.
- Less expensive and can be relatively as effective as a living trust
- It avoids the necessity of probate for the property subject to the Lady Bird Deed.
- Grantor retains full control over the property and can dispose of the property as he/she sees fit and he/she can change the terms of the Lady Bird Deed without consent.
- There are potential tax benefits.
Disadvantages:
- The main disadvantage of a Lady Bird Deed in Florida are some limitations or protections against certain creditors during the owner’s lifetime.
- Title insurance or financing may be slightly more challenging to secure. It also requires careful planning to avoid unintended Medicaid consequences or disputes among beneficiaries.
Medicaid Planning.
A Lady Bird Deed can be a useful tool in Florida for people who are likely to qualify for Medicaid and who are concerned that the government will be able to take non-homestead properties after their death. In Florida, a person’s homestead is protected from creditors with very few exceptions. Medicaid can be one of those exceptions without a Lady Bird Deed.
However, Medicaid can collect from non-homestead properties the amounts paid for care during the owner’s lifetime. Medicaid can assert a claim against assets in a person’s probate estate. A Lady Bird Deed transfers property after death outside probate so the property is not part of the decedent’s probate estate upon death. In this way, non-homestead properties are kept out of the probate estate and are protected from collection by medical claims or any other creditors after the property owner’s death.
Important: The property owner must qualify for Medicaid during their lifetime, and in Florida a Lady Bird Deed aids and qualifies under current Florida qualification rules.
Thoughts and Cautions
There are other circumstances that need to be taken into consideration before utilizing a Lady Bird Deed. Issues surrounding final judgments against the Grantor and the remainderman are beyond the scope of this article.
Like most deeds the Lady Bird Deed has been relatively the same since adoption. Laws are always subject to change, therefore, an attorney should be consulted to make sure a Lady Bird Deed is the proper tool to be used in your specific circumstances.
This article is for general information only and is not intended as and does not constitute legal advice or solicitation of a prospective client. It should not be relied on for legal advice in any particular factual circumstance.