The Lady Bird Deed has advantages and disadvantages, depending on your needs. Many people have never even heard of a Lady Bird Deed. What does it do? Can it benefit you? Should you look into the advantages and disadvantages of a Lady Bird Deed in Florida? Let’s take a look at the Florida Lady Bird Deed pros and cons for estate planning.
What Is a Florida Lady Bird Deed?
The Lady Bird Deed is a nickname for the common law, or more widely accepted name, of the Enhanced Life Estate Deed. This estate planning tool enables you to bypass probate court, maintain eligibility for Medicaid, and qualify for the Homestead exemption in the state of Florida. Essentially, you give yourself a life estate interested in your property. In other words, you have a right to live there until death. If you find yourself in probate court, contact a probate attorney in Florida.
- Avoids Probate. The single biggest advantage to securing a Lady Bird Deed in Florida is that, after your death, your estate can avoid probate.
- Does Not Affect Medicaid Eligibility. In one’s senior years, more care is often required due to physical or mental conditions that have deteriorated, or are deteriorating, due to the aging process. This kind of care can cost a lot of money and it often robs people of all their savings and investments. When all your assets have been drained, Medicaid will then step in to take care of you. With a Florida Lady Bird Deed in place, property assigned in the deed is not associated with Medicaid eligibility. It also avoids Florida’s Medicaid estate recovery rules because ownership of the property does not pass until time of the present owner’s death. Other states have some regulations in place whereby Medicaid may be able to recover costs even after the transfer of property rights upon the current owner’s death. The State of Florida’s rules are different.
- Current Owner Remains Eligible for the Homestead Exemption. The Lady Bird Deed creates a “remainder interest” that only comes into play when the current owner passes away. While still alive, the current owner can still do many things with the property, including selling it, obtaining a mortgage, or disposing of it without having to tell, or share with, those who would be designated to receive the remainder interest upon death of the current owner.
- Less Expensive. While a Lady Bird Deed may cost a little more than another type of deed due to its potential complexity, it is still cheaper to obtain than a trust.
- Delayed Documentary Stamp Taxes. To record a deed, documentary stamp taxes are ordinarily paid. With a Florida Lady Bird Deed, there is no need to pay the taxes immediately. The reason for this is that there is no immediate transfer of ownership. The taxes will be due, however, when the person holding the estate passes.
- Capital Gains Taxes. When figuring capital gains taxes, property transferred in a Lady Bird Deed gets taxed on the value of the property on the date of the owner’s death, instead of the owner’s tax basis. This usually results in a much lower tax.
What are the Disadvantages of a Lady Bird deed in Florida?
The person or persons who is/are named in a Lady Bird Deed to receive the property upon the current owner’s passing is known as “remaindermen.”
- Unexpected Turn of Events. While the Lady Bird Deed names the remaindermen involved, if something were to happen to said named remaindermen, such as the person passing before the owner of the deed does, it is not an easy process to provide an alternative for property distribution.
- Uncertainty or Confusion. Title companies and banking institutions may not be fully up-to-speed on the legalities of a Lady Bird Deed. In some cases, they may require remaindermen to participate in any mortgage concerns.
- Money Owed by the Current Owner. In some cases, if the owner of the property owes money to different creditors, a lien may be attached to the remainder interest such that if the remaindermen were to sell the property, they would be obliged to pay the lien against it for the debts owed. It is also not specified elsewhere in a law whether or not the owner’s creditors can make a claim against the remaindermen, who own the property after the current owner passes. It may take two years after the owner’s death to settle any creditor claims.
- Deed Not Suggested for Those Who Are Married or Have a Minor Child. The Lady Bird Deed should not be used if the owner of the property is married or has a minor child. An owner who is married but doesn’t have any minor children can still use the Lady Bird Deed to pass the remainder interest to the spouse under the Florida Constitution, Article X, Section 4. The Constitution then gives the spouse and any minor children living in the home the right to remain in the home. If a property owner marries or has a minor child AFTER getting a Lady Bird Deed, he/she should review the new circumstances with an attorney to make sure there will be no unwanted surprises at the time of the owner’s passing.
- Estate Tax Return. An estate tax return may still be required. You should consult an attorney for current details.
- Changing Your Mind. A Lady Bird Deed is probably not a good idea if you are prone to changing your mind a lot. If you change your mind regarding to whom you have assigned a remainderman interest, you may have to go through a lot of paperwork involving the title insurance underwriters and the remaindermen, too, who may need to provide signed documentation noting the change.
- Title Insurance Policies. While standard title insurance policies typically cover beneficiaries when involving a trust or a will, they do not cover remaindermen who have been gifted with real property.
Take a solid look at the Florida Lady Bird Deeds pros and cons. While a Lady Bird Deed can be less expensive in the beginning, it might require more money later on if changes are needed that require additional paperwork. Take into consideration the advantages and disadvantages of a Lady Bird Deed in Florida before you ultimately make a decision. In certain circumstances, it can be very helpful. Consult with an attorney who can answer all your questions before you decide. Contact the attorneys at Elder Law, P.A. today.