LADY BIRD DEEDS
Many of my clients do not have Revocable Living Trusts. Therefore, upon their death, any real estate they own will have to go through probate (unless it is owned jointly with a spouse or partner).
An option is an Enhanced Life Estate Deed/Lady Bird Deed as part of the estate plan. But, clients must be aware of the advantages and disadvantages of using this type of deed.
When you own property, you may execute a deed retaining the right to the property during your lifetime, with the right for someone else to receive the property after you die. The right to have the property during your lifetime is called a life estate. The right to receive the property after you die is referred to as a remainder interest.
For many years, in order to avoid probate, parents would have deeds prepared retaining a life estate in themselves, granting a vested remainder to their children. This worked well in avoiding probate, as well as preventing reassessment of their property for real estate tax purposes. It also preserved a step-up in tax basis at the death of the parent, since the property wasn’t considered transferred until death.
The disadvantages of this type of deed are that you could not easily undo the transaction. If the parent wanted to mortgage or sell the property, the parent would need the child to sign the mortgage or the deed. If the parent changed his or her mind and wanted to add or remove a child, the consent that child would be required. Even worse, if the child had financial issues and a judgment was recorded against him or her, that judgment could be a lien on the parent’s property. In addition, if any of the children died, his or her share could require probate.
Also, if the parent needed to apply for public benefits such as Medicaid to help cover the cost of Long-term Care, the transfer would be considered to be a transfer of assets which would create a penalty period hampering the parent’s ability to qualify for Medicaid.
The Enhanced Life Estate Deed/Lady Bird Deed adds language in the deed which basically says that the parent has the right to revoke the deed and sell the property to another person without the consent of the child. And, fortunately, this type of deed does not trigger a penalty period for Medicaid. This type of deed transfer still avoids probate.
However, the law is presently unclear about other issues.
For one, if a parent wants to sell or mortgage the property, some title companies or lenders require the children to sign the deed or mortgage. Any judgment against the child is still, in some cases considered a lien on the parent’s property. This is a very controversial issue and is typically decided on a case by case basis by the title company or lender. Moreover, if the parent changes his or her mind and wants to add or remove a child, the consent of the existing children is still required by many title companies. Finally, if one of the children dies, his or her share may still need to be probated.
While the advantages mostly outweigh the disadvantages, it is important to understand the pros and cons of using an Enhanced Life Estate Deed/Lady Bird Deed.
We, at the Law Office of Debra G. Simms, are glad to assist you in determining if this is the right plan for you. Call us today at (386) 256-4882.