What is a "Lady Bird Deed"?
Enhanced life estate deeds, commonly known as Lady Bird deeds have been growing in popularity as an estate planning tool over the past 20 years. Interestingly, Florida is an exception to the rule as it is in the minority of states which recognizes this form of a deed. In fact only five states, Florida, Texas, Michigan, Vermont and West Virginia acknowledge this process as a way of transferring property upon death outside of probate.
The conventional life estate deed allows the owner of the property to convey their interest, typically to their children, yet retain an interest in the property for as long as they shall live. This transfer permits the parents to retain possession of the property during their lifetime and allows the property to pass to their children by operation of law without having to go through probate. Unfortunately, with the conventional life estate deed, the grantor's power over the property is substantially limited. The grantors could no longer sell or finance the property without the grantees (typically their children) joining in the conveyance or mortgage. As a result, the conventional life estate deed had many flaws.
Introducing the Lady Bird deed commonly known as an enhanced life estate deed. This new form of deed has been created to deal with the limitations of the prior standard form life estate deeds by containing additional language granting the life tenant the ability to maintain complete power and control during their lifetime.
By retaining control during their lifetime the grantor may sell the property at any time without the consent of the grantee. They can mortgage the property, lease the property or sell the property and take the entire proceeds. They also have the right to live in the property during their lifetime and the right to revoke the Lady Bird deed at any time. Typically if a couple is married they will hold the ladybird deed benefits jointly. Upon the death of one spouse the other spouse maintains the original benefits.
In Florida it is important to recognize that holding property within a Lady Bird deed will still allow the grantor to maintain homestead benefits for the purposes of tax benefits as well as asset protection. From a tax planning standpoint the ultimate beneficiaries receive a step up in basis and do not have to pay capital gains upon the death of the grantor. A grantor is not required to file a gift tax return since the IRS considers the lifetime transfer an incomplete gift.