Lady Bird Deeds: A Unique Kind of Life Estate
The right to reside in a property until your death or another event occurs can be preserved by using a life estate to transfer it to another person. You are made a life tenant of the property by virtue of being the grantor of the life estate deed.
What Is a Lady Bird Deed?
Enhanced life estate deeds, also referred to as Lady Bird Deeds, are life estates in which the grantor has substantially more power over the property. If you are a property owner, you can transfer real estate to a particular beneficiary via a Lady Bird Deed while keeping some of your property rights. These options include the ability to sell your stake, mortgage the property, and request exemptions from paying property taxes. These rights expire at your death and the property is fully controlled by the beneficiary you have designated, without the need for court intervention.
However, only Florida, Texas, Michigan, Vermont, and West Virginia are among the states that permit this arrangement.
6 Justifications for Creating a Lady Bird Deed
Thus, if a Lady Bird Deed is permissible by state law, why might someone think of using one?
1. For many, the desire to avoid a court making decisions regarding the property as well as the expenditures of having to go to court comes first and foremost.
2. By taking a significant asset like your home out of the probate equation, your estate may be eligible for an expedited process, which could also enable your heirs to speed up any remaining probate proceedings for the remainder of your assets.
3. You could have residences in several states. You might be able to simplify matters for your loved ones using this form of deed, at least in one state, so they don't have to deal with multiple state courts.
4. A Lady Bird Deed helps prevent disagreements between your successors. If the deed is properly designed and executed, an inheritance dispute can be avoided when a designated beneficiary is deeded ownership of a property without the asset passing through probate. A grantor may also be able to nullify or cancel the deed if they change their minds later.
5. If a Lady Bird Deed is legal in your state, you still have a lot of control over the property while you are still alive.
6. A Lady Bird Deed provides tax benefits comparable to the "step-up" your heirs would get if the property were conveyed to them via probate.
A "step-up" in basis is likewise granted to the Lady Bird Deed beneficiary. Therefore, the value of the property at the time you became the owner, and not the grantor, will be used to calculate any tax obligations resulting from the sale of the property. This frequently saves the beneficiary a sizable sum in capital gains tax. The asset might still be counted toward your estate tax assessment, though.
Do Lady Bird Deeds Have Any Drawbacks?
There are some potential issues with Lady Bird Deeds. One of the major drawbacks of this arrangement is that the property is not shielded from creditors or a grantor's divorce.
This kind of life estate deed can also provide problems in some states if the grantor wants to be eligible for Medicaid because it forbids property transfers within a certain time frame.
Despite having "enhanced" rights over a standard life estate, a person's rights are nevertheless constrained while the Lady Bird Deed is in force. The deeded beneficiary, who still has a stake in the property, can still have an impact on choices about it. In certain circumstances, such as when the grantor neglects to maintain the property or doesn't pay property taxes, beneficiaries may have the right to sue the grantor.