Life estate deeds with reserved powers to sell, also called Lady Bird deeds, can be a great tool to transfer ownership of real property at death. This type of deed got its nickname when President Lyndon B. Johnson used one to convey property to his wife, Lady Bird.
Florida Today’s recent article entitled, “Real estate transfers: Is a ‘Lady Bird deed’ right for me?” explains that Lady Bird deeds are a type of life estate deed designed to automatically transfer property ownership upon the death of the original owner to another individual. However, they don’t require the original owner to give up use, control, or ownership of the property while alive.
The beneficial receiver of the property upon death doesn’t get any immediate rights or ownership interests in the property. Their consent isn’t needed to sell, convey, or change the use of the property while the original owner is alive. The life estate deed is rendered obsolete if the original owner sells or conveys the property in their lifetime. However, if the original owner passes away, the property subject to the Lady Bird deed is automatically conveyed to the beneficial recipient without needing to pass through probate.
With a Life Estate deed without reserved powers, the original owner must give up some control when adding a beneficial recipient. This means the original owner is prohibited from selling, conveying, or encumbering the property without explicit consent from the beneficial recipient. The original owner also can’t change or end a traditional Life Estate deed without consent from the beneficial recipient.
Here are the benefits of a Life Estate deed:
- Properties can be conveyed at death without having to pass through probate.
- The original owner remains in full control of the property while they’re alive.
- Recording a Lady Bird deed doesn’t impact the current owner’s homestead protection and exemptions.
- Any property subject to a Lady Bird deed doesn’t violate Medicaid’s five-year look-back period and isn’t subject to gifting taxes or penalties since the beneficial owner doesn’t immediately possess any ownership rights.
Here are the downsides of a Life Estate deed:
- Offers no protection from a nursing home situation because you can change it whenever you want. If you do into a long-term care situation, the State generally expects you to sell the home and spend down funds before they pay.
- Doesn’t protect properties from any judgment liens issued against the original owner during their lifetime.
- If the home has a mortgage, the lender can call the loan on this type of transfer.
- Life estate deeds are blunt instruments, and unlike a living trust or testamentary trust is unable to provide asset and divorce protection to beneficiaries. or provide special needs protections.
A Lady Bird deed can be an effective tool to transfer property outside of probate. I think of it as the equivalent of turning your house into a life insurance policy, which you still own completely until you die, but transfers at death immediately with no Court involvement. However, as in any real estate transaction or estate planning endeavor, it is necessary to have a knowledgeable estate planning attorney to discuss your desired outcome and best course of action for your specific situation.
Reference: Florida Today (June 9, 2023) “Real estate transfers: Is a ‘Lady Bird deed’ right for me?”
