What kind of name is “Lady Bird” deed? While the name may be strange and misplaced, the deed is a very useful tool in Florida estate planning. A lady bird deed or “enhanced life estate deed,” is only authorized in certain parts of the United States. More specifically, Florida, Michigan, Texas, Vermont and West Virginia are the only states that authorize this particular type of deed, though other states may have an equivalent vehicle. The Lady Bird deed is one of the best things in Florida. When used correctly, it achieves wonderful, probate-avoiding results.
What is a Lady Bird Deed?
The Lady Bird deed gives an owner control of her property until the owner’s death. When the owner dies, the property is transferred to new owners without any need for probate. This is beneficial if you understand what probate is: a court-supervised process for transferring assets to your heirs at the time of your death. Probate proceedings can be very complex, especially if you have many family members with complicated relationship dynamics.
Probate can be complex and involve a myriad of legal issues. Third parties sometimes get involved and family members may not end up getting the assets that they believe they deserve. There are also significant expenses related to probate – without probate, there are fewer expenses. The estate ends up paying for legal expenses like attorney’s fees and court costs. Probate inevitably ties up your assets in Court, so though you may have intended for your assets to benefit your loved ones, the Courts can ultimately prevent your friends and family from benefitting from your assets for a very long time. This is generally not a favored approach, which is why many people look to vehicles like the lady bird deed or a Revocable Trust.
How does it work?
The individual who creates the lady bird deed transfers her property to herself for her life, giving said owner a “life estate.” The owner is therefore a “life tenant.” When the original owner dies, the lady bird deed allows you, the owner, to transfer your property to anyone of your choosing – this could be a person, a trust or an organization. The individual or entity to whom you transfer the property is called a “remainder beneficiary.” The life tenant has a lot of flexibility as to what she can do with the property – ultimately, she can choose to mortgage the property or sell it to someone else, and she does not need the consent of her remainder beneficiaries.
Will it help me?
While not everyone will opt for a lady bird deed, if you are a property owner, this is an option that you should seriously consider. First, as mentioned earlier, this tool will remove your property from the jurisdiction of the probate court. This is highly favorable for your remainder beneficiaries – your assets can be enjoyed by the individuals or organizations that you gave the deed to. Furthermore, as the life tenant of a lady bird deed, you will never have to answer to anyone if you change your mind about what you want to do with your property. You can sell it, mortgage it off or change your remainder beneficiaries without involving third parties.
There are also significant tax benefits that are associated with the lady bird deed. The property under a lady bird deed is an “incomplete gift” for tax purposes. There is no requirement to pay gift tax on this asset. The IRS assumes that the property belongs to the life tenant throughout the duration of her life, and it is as though the owner did not transfer the property during her lifetime. Next, the property is included as part of the estate’s taxes at the time of the life tenant’s death. Therefore, the property is treated as an inheritance for the remainder beneficiaries. This allows for an adjusted basis for tax purposes for the remainder beneficiaries, and allow them to save on what would be a big tax bill when the remainder beneficiaries ultimately sell the property.
How to get a Lady Bird deed.
If a lady bird deed sounds appealing to you, thank your lucky stars that you live in a state that provides for one! (The reason that the lady bird deed is only allowed in five states is because of title insurance. Other states will not insure title for lady bird deeds, which is why this vehicle is only available in states where title insurance companies will insure this type of title.)
Please contact us with your questions about lady bird deeds, or fill out a contact form here. We will happily draft one and electronically file it on your behalf.
Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!
Disclaimer: The Law Office of Lori Vella’s website contains general information directed to Florida residents. This firm does not intend to give legal advice through its pages and/or blog. If you need legal advice, we encourage you to find an attorney licensed in your state. This language on this website does not create an attorney-client relationship between you and this firm.