As someone concerned about their family’s future, you’ve likely thought about what will happen to your assets if something unexpected occurs. This thought often leads folks down the path of estate planning and tools such as Florida’s ladybird deed. If you own property in Florida and want to maintain control of it while you’re living while ensuring it seamlessly transfers to your loved ones upon your death, a Florida ladybird deed might be just what you need. It lets you avoid the often costly and time-consuming probate process. Let me explain why a Florida ladybird deed has become a bit of a go-to in the Sunshine State.
Navigating the world of estate planning can be fairly complex. There are many legal terms, strategies, and documents that can be confusing. That’s where the ladybird deed comes in handy. It is designed to make things straightforward and easier to understand. Plus, it can provide great peace of mind knowing that your property will go to the individuals you intend it to go to. It is, however, not without drawbacks. So before jumping headfirst into signing and recording a ladybird deed, you will want to read this article.
What Is a Lady Bird Deed and How Does it Work?
A Lady Bird (or “Ladybird”) Deed, can come in the form of other names, like a Transfer on Death Deed, an Enhanced Life Estate Deed, or a Lady Bird Trust. No matter what you call it, a Ladybird Deed is a form of “Enhanced Life Estate Deed” with a twist.
A Ladybird deed is a legal document that lets you, the property owner, retain complete control over your property while you are alive, but have it seamlessly transfers the property to your chosen beneficiaries upon your death, thus bypassing the need to probate the property. When done correctly, this deed creates a life estate for you, which means you maintain the legal right to live on the property for the rest of your life, rent it out, or even sell it if you wish. You can do this without worrying about obtaining the consent of your beneficiaries if you decide to sell the property, or even change your mind and remove or add beneficiaries. Your beneficiary’s legal interests do not vest until your death. Otherwise known as a remainder interest, your beneficiary will receive the property, assuming you still own it, at the time of your death. If you are thinking that this estate planning tool would work for your situation, you need to pay particular attention to some of the disadvantages and examples described in more detail below.
What you must know is that a Ladybird deed deviates from a standard Life Estate Deed where the homeowner (you the life estate tenant), maintains full control over their property for their life. In a standard Life Estate Deed, however, the property owner grantor does not maintain this control because the beneficiary immediately has ownership rights. Moreover, the transfer is immediate and irrevocable, and subject to the Medicaid look-back period for eligibility. The only way to undo this is by a new deed from you, and signed by all beneficiaries, back to you individually. This is not always easy or possible for a variety of reasons.
Say, for example, you decide to sell the property, or take out a equity line of credit mortgage to pay living expenses or put a new roof on your home, you will need to obtain the written approval from all of your beneficiaries. Some lenders will not give a mortgage on a property where a potential borrower has a life estate interest with beneficiaries owning a remainderman interest and neither will title companies insure the transaction without the written consent (signatures on a deed) of all contingent beneficiaries who would otherwise be entitled to take under state intestacy statutes.
In another example, say you give a life estate to your favorite niece Becky. Three years later, you unexpectedly need to enter a nursing home and apply for Medicaid. Medicaid reviews transfers within a five-year period (the look-back period) and considers the transfer to Becky a disqualifying transfer. This results in a penalty period during which you are ineligible for Medicaid benefits. With the costs of nursing home care today, this could be a costly mistake.
The beauty of the Lady Bird deed is that it grants your beneficiary (or beneficiaries) the right to the property upon your death automatically, making it a useful tool for those who want to keep their property out of the probate courts. Since Florida has not embraced the Uniform Real Property Transfer on Death Act (“URPTODA”), using a ladybird deed can offer a solution for folks looking to sidestep the time and expense of the probate court process. URPTODA has been adopted in 19 states and allows property owners to transfer real property upon death without probate, Florida is not one of these states which is why Ladybird deeds are recognized in the Sunshine State.
Along with Florida, only four other states legally recognize Lady Bird Deeds, including Michigan, Vermont, West Virginia, and Texas.
Advantages of a Lady Bird Deed
When we delve into the advantages of the Lady Bird Deed, there are five clear-cut reasons it makes a great estate planning tool. People use Lady Bird deeds for many reasons – the main one being the benefits it gives when planning an estate. Some other great benefits include avoiding lengthy and complicated processes to unlock value (“appraisal”), additional control for the estate holder, flexibility should the unthinkable occur, maintaining ownership within the family, and maximizing potential tax benefits.
1. Avoidance of Probate
The most significant advantage is its power to sidestep the probate process by transferring the property to beneficiaries while alive, yet maintaining full control over the property as described above. This will save your loved ones from the hassle of navigating a complex and often expensive legal process known as probate after you are gone. This avoidance is significant, as probate in Florida can sometimes be quite a headache, taking considerable time, money, and emotional energy, things grieving families don’t want, nor should they have to be burdened with.
2. Retain Control of the Property
Unlike traditional standard life estate deeds, a ladybird deed in Florida allows you to keep full control of your property during your lifetime. This means you can sell it, mortgage it, lease it, or make changes to the deed itself if your needs or wishes change. You have full authority to make all decisions regarding your property without involving or obtaining approvals from the beneficiaries.
3. Protection from Creditors
As long as your property is your homestead and qualifies as such under Article X, Section 4 of the Florida Constitution, the Lady Bird deed can offer some protection against creditors’ claims, although it’s essential to remember this benefit applies to judgments only against you and does not extend to any claims against your beneficiaries. This safeguard is a major perk as it keeps your property safe if either you or your beneficiaries encounter financial issues, ensuring that family members won’t need to be subjected to selling a property due to financial woes.
4. Medicaid Planning
This one might surprise you. If you anticipate needing Medicaid assistance in the future, the Lady Bird deed can help ensure your eligibility, which is often a big concern for folks. Since this Ladybird deed isn’t considered a transfer of assets for Medicaid look-back purposes, it can prevent delays or disqualifications in receiving these vital benefits. It is important to note that a Ladybird deed is one estate planning tool, not a planning strategy to become eligible for Medicaid. An enhanced life estate deed like a ladybird deed allows Medicaid recipients to protect their primary homesteaded property as an inheritance for those they love without risking their Medicaid eligibility. Standard life estate deeds will violate Medicaid’s look-back rule because as mentioned previously, the beneficiary immediately has ownership rights. If you are interested in learning more about Medicaid planning, you might want to read our other article here.
5. Potential Tax Savings
While you should always consult with your tax advisor, the ladybird deed can provide potential tax savings. Because the transfer occurs after your death, your beneficiaries will get a “stepped-up” tax basis, meaning their capital gains tax burden will be calculated based on the property’s value at the time of your passing. They will avoid paying capital gains tax on all of the appreciation that has occurred during your ownership of the property.
Also, property transfers using a Ladybird deed are not subject to federal gift tax or estate taxes by the Internal Revenue Service (IRS), in Florida, the real property will maintain its homestead exemption for all purposes.
Disadvantages of a Lady Bird Deed
While this estate planning tool boasts its share of benefits, no tool is one-size-fits-all. That said, while a ladybird deed in Florida can be beneficial, it may not be the ideal option for everyone and might not make sense depending on individual situations. Knowing when a tool isn’t right is as important as understanding when it’s a slam dunk.
1. Uncertainty About Homestead Rights for Beneficiaries
Because of Article X, Section 4 of the Florida Constitution, a point of confusion for those looking to make and record a ladybird deed is that Florida’s stance on whether it remains fully effective if you have a surviving spouse or minor children is unclear. If, for example, the life tenant with enhanced powers is survived by a minor child, the “transfer” of the remainder interest will be considered a devise that violates the restrictions set forth in the Constitution. In another example, if the life tenant with enhanced powers is survived by a spouse and not by a minor child, unless the remainder interest passes to the surviving spouse, the “devise” will also violate the restrictions set forth in Article X, Section 4, of the Florida Constitution and in both examples, deeds from all of the heirs of the decedent(s) of the life tenant(s) will be required for the purposes of insuring title, which will be required upon sale of the property by signing a deed. So it’s not hard to imagine how if the once loving siblings now at ods as to who get’s what from mom or dad’s estate could hold up the sale of a valuable asset that will result in a costly legal battle.
Additionally, as noted above, judgments against the remainderman can also pose a risk against that particular beneficiary’s interest in the property. Said another way, homestead does not protect the beneficiary’s future interest in the property and the creditor will likely have to be paid off to avert legal action to enforce it’s rights against the beneficiary thereby affecting all the beneficiaries.
For many folks, it might be wiser to discuss alternatives or additional safeguards with an experienced estate planning real estate attorney to guarantee complete protection.
2. Difficulty Obtaining Title Insurance
Since this type of deed is only accepted in five states, Florida being one as mentioned above, it is not readily accepted by title insurance companies. Sometimes, a hurdle with Lady Bird Deeds involves getting title insurance, especially from companies unfamiliar with these types of deeds. This issue arises when the property owner lists only some of their children as beneficiaries, making some companies wary of potential title disputes with any left-out heirs. As with anything, preparation and early planning are key. If you plan to use a ladybird deed in Florida, you must anticipate your needs in the future. If for example, you may need to access some money using the equity in your home by taking out a home equity line of credit, your lender will require a “Lender’s Title Insurance Policy.” It’s important to know that not all lenders will accept you holding title to your property via a ladybird deed. As noted above, the uncertainties of board with the specific nuances of a ladybird deed.
3. Creditor Claims
Here’s a catch. If one of your named beneficiaries on your ladybird deed happens to have a federal tax debt or judgment against them before your death, there’s a good chance this could attach to the property even before they formally inherit it.
It can create unintended consequences and complicate matters for both yourself, and your beneficiary(ies) as mentioned above, so advanced planning for this is key. It’s recommended you consult an an experienced estate planning real estate attorney for further advice in this area.
4. Possible Loss of Stepped-Up Basis
Should the unexpected occur and your beneficiary passes away before you do, the intended benefit of a “stepped-up” basis in the property for capital gains tax purposes might be lost. As we all know, life throws us curveballs and if this happens, the property’s value reverts to the original cost basis at your purchase. In layman’s terms, if and when your heirs eventually sell it, they may face a heftier capital gains tax burden – not ideal for them.
5. Other disadvantages of a Lady Bird Deed in Florida – Real Life Examples
Real-life examples always bring clarity. Here are a few examples:
Potential for Family Disputes: In situations where there are more than one beneficiary, they must be on the same page and working together. When in doubt, or where there are multiple beneficiaries, a revocable living trust may be a better option. For example, let’s say Becky has a single asset, her mortgage-free beachside cottage worth $600,000 dollars. She is a widow and names her three children as joint beneficiaries in a Lady Bird Deed. After her death, one child wants to sell the property and divide the proceeds, while the other two children prefer to keep it and turn it into a vacation rental. This disagreement leads to a prolonged and emotionally charged legal battle, with each sibling hiring attorneys to assert their preferences. The conflict results in significant legal fees and family discord, overshadowing Becca’s intention to simplify her estate. In other situations where any children are omitted as a potential beneficiary of an estate, this is almost a guaranteed invitation to a legal dispute.
Limited Flexibility: Micky executes a Lady Bird Deed naming his daughter, Olivia, as the beneficiary. Years later, Micky wants to sell the property to move overseas where the cost of living is less. While he retains the right to do so, it likely will require the writtend consent from Olivia so the process can be more complicated due to the existing deed, and may require legal assistance to navigate the sale properly. While the Lady Bird Deed allows Micky to sell the property without Olivia’s consent, the process can become legally intricate. Micky must ensure the deed is correctly handled to prevent any future legal challenges or claims from Olivia regarding the sale.
Adverse Impact on Estate Planning: Thomas uses a Lady Bird Deed to leave his property to his niece, Jaden. However, he forgets to update his Will and other estate planning documents to reflect this change. Upon Thomas’s death, his executor and other family members find conflicting instructions in his Will, which still mentions leaving the house to his nephew. This inconsistency causes confusion and leads to a legal challenge to determine Thomas’s true intentions. The estate ends up incurring additional legal costs, and the property transfer is delayed.
Lack of Control in comparison to a revocable living trust (but less expensive): Widower Jim signs his primary residence over to his most responsible living daughter Pattie with verbal instructions to sell the house on his death and split everything equally with her four siblings. Jim created raised his five children in a loving household and they were an extremely close family who never before had an issue. Turns out, Pattie was not as financially responsible as Jim envisioned and had significant debts, including the IRS. Jim, otherwise healthy as a horse, had an unexpected fall and needed to go into an assisted living facility (“ALF”). Without speaking to her four siblings, Pattie took it upon herself to sign a contract with the ALF at a monthly cost of $9,800 per month. Jim is a private person who never shared his finances with his family and he does not like conflict. When approached by his other four children about whether he could afford it, all he would say is you have to speak with Pattie who was already refusing to discuss the matter. While silently worrying that he will run out of money in 10 months, he met a lady friend there and did not want to leave so he tells Pattie to sell the home for whatever she can get on a quick fire sale. A revocable living trust is a written agreement not only deciding where your stuff goes when you die, but what happens to you and your stuff while your alive, and who will make decisions for you.
A most recent event in South Florida heavily covered by the major news outlets involved a gruesome triple homicide. What was not covered in the news was that mom left son, the shooter, her home via a ladybird deed. Son apparently had a psychotic event leading him to shoot mother and wife before turning the gun on himeself. The legal question as to who gets what will take some time to unravel and likely turn on who died first, mother or wife. (Florida, like most states has criminal statutes preventing a person from receiving the benefit of their criminal act so it is unlikely shooter’s family will receive the property inherited by the shooter upon his mother’s unfortunate demise.) It will be the difference between whether the estate of the wife will receive the property, or if it will go to the State. I’ll write another article on this after all the facts are known.
Example of Lady Bird Deed When Done Correctly
Imagine a scenario where Mike and Nancy own a home in Florida. They’ve worked hard all their lives and want their children to inherit it. Using a ladybird deed in Florida, they retain full control over their home, and upon their death; ownership passes to their kids smoothly, without the need for probate in Florida.
The Lady Bird Deed: Is It Right for You?
So how do you know if this unique legal tool fits into your plans? In short, it depends. Before running out to get a ladybird deed, a word of caution: They are not always as straight forward as they appear. If you have questions regarding ladybird deeds or their implications beyond this general information, seek help from an experienced Florida estate planning and real estate attorney, to discuss your personal situation and the specific details under Florida law.
Second, if your primary goal is to streamline the transfer of your real property in Florida while retaining some control during your lifetime, the Lady Bird deed offers a possible solution for you. Whether it is right for your specific situation, you must weigh the benefits against any potential downsides and should always seek the counsel of an experienced Florida estate planning and real estate attorney before using it as a part of your estate plan.
FAQs about Florida ladybird deeds
FAQ 1: What is the disadvantage of a ladybird deed in Florida?
Although beneficial, one downside of the Lady Bird Deed Florida is that, in cases where the named beneficiaries are subject to creditor claims before the original owner’s death, these debts might encumber the property even before the beneficiaries take full possession, as explained earlier. Essentially, a creditor might look to place a lien against the property, similar to what could happen if an IRS lien were placed against a remainderman after being listed on the deed.
FAQ 2: How does a ladybird deed work in Florida?
Picture it like a special key. The Florida Lady Bird Deed works as a special kind of deed, formally called an Enhanced Life Estate Deed, granting you complete control over your property until your passing. When this happens, the property automatically transfers to the individuals you designated in the deed – your beneficiaries, smoothly sidestepping the probate process.
FAQ 3: How much does it cost for a ladybird deed in Florida?
Pricing for legal documents can be a bit tricky because prices vary depending on the attorney and complexity. However, typically, the cost of creating a ladybird deed in Florida might run you a few hundred dollars but could go higher if your situation is particularly intricate. Always double-check with an experienced Florida estate planning and real estate attorney for their pricing so there are no surprise costs.
FAQ 4: What are the tax consequences of a Lady Bird deed in Florida?
Great news for the tax-conscious. Often, transferring property via a Lady Bird deed won’t slap you with a gift tax. Your beneficiaries usually avoid a hefty tax bill right away, as it’s structured as an inheritance. It’s best to speak with a financial advisor to see how the tax consequences would apply to your situation directly.
Conclusion
A Florida Lady Bird deed can be an effective legal estate planning tool to transfer your real property when done correctly and under the right circumstances. It empowers property owners while also protecting their legacy. It provides both current and future benefits that make it a compelling choice, so talk to a professional in Florida about how it could apply to you. The Florida ladybird deed offers control, flexibility, and peace of mind – something everyone deserves as they navigate their personal estate planning journey.
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If you live in, or own real property in the State of Florida and have questions about Lady Bird deeds, are curious about other options like Medicaid Asset Protection Trusts (“MAPT”), or want to find out how we can help you set up your estate plan to protect your family and your assets, contact estate planning and real estate attorney Jeffrey S. Eannarino. As you work through these important issues, remember, that we are a resource for you, so please don’t wait to meet with us. If you have any questions about probate or your estate planning, book a complimentary discovery call meeting or call our office at (561) 275-1500.
DISCLAIMER
The opinions and views expressed in this article are mine only. I do not suggest, nor do I contend, that this article, or the authorities cited herein, are minimum standards of care or required standards of practice. The goal of this article is to bring awareness to issues that may arise and the information contained herein is for informational purposes only, and should not be considered as legal advice. This article contains general information and may not reflect current law or legal developments. Any person viewing or receiving information from this article should
not act or refrain from acting based on any such information but instead, should perform their own research, and or seek the appropriate legal counsel from a licensed qualified professional.
