A Lady Bird deed is gaining popularity in the real estate community as a means of transferring real property (by warranty or quitclaim deed) without the need for probate. Technically speaking, a ladybird deed is a transfer of real property to a contingent grantee that reserves 1) a life estate, and 2) the lifetime power to convey the property and unilaterally defeat the grantee’s interest. It is a classic example of retaining the power to take back with the left hand what the right hand has given. Before obtaining the nickname of ladybird deed, this type of transfer was commonly referred to as an “enhanced life estate” (a life estate reserved in the grantor and enhanced by the grantor’s reserved power to convey).
It is generally believed that the first ladybird deed was used by President Lyndon Johnson to transfer property to his wife, “Lady Bird” Johnson, upon his death. However, use of the term should more appropriately be attributed to Jerome Ira Solkoff, a Florida attorney, who used a fictitious cast of characters (including “Lady Bird”), in his elder law materials to illustrate the usefulness of an enhanced life estate transfer.
In the most basic ladybird transfer, the grantor 1) retains a life estate, and 2) the power to subsequently convey the fee simple interest. This power to subsequently convey is often expanded to include the power to gift, mortgage, lease, or otherwise dispose of (i.e., sell) the property. A ladybird deed can be used to establish a very simple estate plan and avoid probate. This planning tool is suitable for:
- single persons
- married couples
- tenants in common
- joint tenants
- multiple remainderpersons, and
- revocable trusts
Since this type of deed is a transfer-on-death document, the property does not become part of the grantor’s probate estate. Also, since the grantor still has an ownership interest until death, the grantor should be permitted to retain homestead rights, and any existing title insurance coverage (i.e., the conveyance does not void an existing policy).
Furthermore, the execution of a ladybird deed does not have federal gift-tax consequences. The remainderperson acquires no ownership interest in the property until the death of the grantor. The remainderperson receives a step up in basis, which is the fair market value of the property at the grantor’s date of death. However, since the grantor held an interest in the property up until the date of death, the full value of the property will be included in the grantor’s estate for estate and gift-tax purposes. 26 USC 2036(a). Consultation with your tax professional is highly recommended.
Summing up, an enhanced life estate deed (a Lady Bird deed), lets one:
- avoid probate of the property
- keep the right to use and profit from the property for one’s lifetime
- keep the right to sell the property at any time
- avoid making a gift that might be subject to federal gift tax
- avoid jeopardizing one’s eligibility for Medicaid
- prevent the property from being sold, after death, to repay the cost of Medicaid benefits one might have received
As always, should you have any questions related to transfers of real estate or the implications of probate to real property, we urge you to consult with your local real estate attorney.
Berlin Patten Ebling, PLLC
Article Authored by Mark Hanewich, Esq. email@example.com
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
3700 South Tamiami Trail, Suite 200, Sarasota, FL 34239 P (941) 954-9991 F (941) 954-9992
247 Tamiami Trail South, Suite 201, Venice, FL 34285 P (941) 955-9991 F (941) 484-9992
8130 Main Street, Suite 206, Lakewood Ranch, FL 34202 P (941) 907-9022 F (941) 907-9024