Enhanced Life Estate Deed

The enhanced life estate deed allows you to reserve a life estate in your property, and you give the remainder interest to a beneficiary (could be your children or any adult person) but they do not receive the interest until you die. This is not a “typical” life estate deed, however, because the deed has language that states you are retaining the right to sell, convey, mortgage, lease, or otherwise dispose of the property during your lifetime, without the joinder and consent of the remainder person(s). An enhanced life estate deed is also referred to as a “Ladybird Deed,” due to an example used in an elder law article describing the creator of the deed as “Ladybird” and her daughter, the remainder beneficiary, as “Lindabird.”

The advantages of using the Ladybird deed are to avoid probate, to maintain the homestead tax exemption, to maintain control over the property, and to allow the remainder persons to receive a step-up in basis at the death of the life tenant. Additionally, for purposes of Medicaid, such a deed is not considered a gift to anyone (whereas, adding someone onto the deed of your property as a joint owner with rights of survivorship is a “gift” for Medicaid purposes).

The disadvantages of using a Ladybird deed include the following:

1. If the remainderman dies before the life tenant, a probate will be required unless the remainder interest is held with two or more people, as joint tenants with rights of survivorship (then only property would belong to the surviving remainder person(s);

2. If a judgment is recorded against the remainderman, and the life tenant reconveys the remainder interest to another party, the judgment may have to be paid off first (definitely has to be paid off if it is an IRS lien);

3. If you change your mind about who the remainder person should be, you may be required to obtain the remainder person’s signature on the deed in order to change who the remainder person is. This is a requirement by Attorney’s Title Fund Services who insure title on property and their reasoning is based upon the potential for litigation by the remainder person or judgment creditor of the remainder person.

What was the intended purpose of creating such a deed? Simply put, probate avoidance. In many cases, a client only has a small bank or brokerage account and a personal residence. Creating a revocable living trust would be overkill in these small situations and generate unnecessary attorney’s fees. By using “paid on death” designations for the bank or brokerage accounts and drafting a ladybird deed, the client may maintain control of his assets while alive and avoid probate at death. If incapacity is an issue, a durable power of attorney can be drafted at the same time as the ladybird deed. This approach is a good substitute for a revocable living trust in small estates and at a fraction of the cost. In addition, when planning for Medicaid qualification, a ladybird deed can be used to transfer property at death without being considered an uncompensated transfer during lifetime. This is what happens when a traditional remainder interest is created without the revocation language used in a ladybird deed.

Regardless of the potential unknown consequences of using ladybird deeds, the use of ladybird deeds continues to grow in Florida, as well as in other parts of the country, as an inexpensive way of avoiding probate.

Have questions about a ladybird deed? Schedule a complimentary phone consultation with Attorney Laurie Ohall, please contact her office at 813.438.8503.

2016-05-14T09:20:06+00:00