A lady bird deed is an essential tool to consider when estate planning. Also referred to as an enhanced life estate deed, this instrument can allow you to transfer ownership of your home to your beneficiaries when you pass while remaining in full control of the property during your lifetime. Lady bird deeds can offer a number of benefits, including probate avoidance, control, flexibility and potential protection from Medicaid.

Key Takeaways

• A lady bird deed is an essential estate planning tool that can allow you to bypass the probate process for the deeded property.
• With a lady bird deed, you retain full rights to the property during your lifetime.
• A lady bird deed can be used in connection with a trust for increased flexibility and additional protections in estate planning.

What is a Lady Bird Deed?

A lady bird deed is a “deed,” just like a quit claim deed or warranty deed. However, a key difference between a lady bird deed and those deeds is the lady bird deed makes your home essentially “payable on death” to the individuals named in the instrument, without going through the probate process at all. It is a vehicle that can be used to ensure you pass your property directly to your intended beneficiaries upon your death and bypass the probate process. In contrast with a traditional deed, a lady bird deed allows you to retain your full rights to the property while you are alive, including the rights to live in, sell, or mortgage the home. You can also change your mind at any time about who your named beneficiaries are, or revoke the deed entirely.

What are the Requirements to Create a Lady Bird Deed?

There are specific criteria that must be met in order for a lady bird deed to successfully transfer your property outside of the probate process. Specifically, in order to be valid under Florida law, a lady bird deed must meet the following requirements:

• The deed must include specific language to create an enhanced life estate.
• The deed must be signed by the property owner in front of two witnesses and a notary public.
• The owner must retain full control of the property during their lifetime.
• The deed must designate specific beneficiaries to whom the property will be transferred to upon the owner’s passing.
• The deed must include an accurate legal description of the property, beyond the street address.
• The deed must be recorded in the county where the property is located.

If the above requirements are not met, the deed may be rendered invalid. This means the property would need to go through the probate process, defeating the primary objective of the instrument. Improper drafting can also result in a cloud on the title of the property or leave the property exposed to creditor claims and Medicaid Estate Recovery.

What are the Benefits of a Lady Bird Deed?

There can be many advantages to using a lady bird deed as part of your estate plan. Some of the benefits of a lady bird deed include the following:

• Probate avoidance: The property subject to the lady bird deed avoids the public probate process. Rather, it passes your property directly to the beneficiaries when you pass away.
• Creditor protection: If the property qualifies as a homestead, it is protected from most creditors.
• Control: You retain full control over the property during your lifetime and can modify it as you wish. The beneficiaries have no ownership interest in the property until your death.
• Cost-effective: A lady bird deed can help save you and your beneficiaries time and money. It is often more cost-effective than setting up a trust for transferring real estate. While there is a recording fee for the deed, this is nominal compared with the costs that can be associated with the lengthy probate process.
• Flexibility: A lady bird deed can be altered at any time while you are living. You can change the beneficiaries or even revoke the instrument if you decide to sell the property.
• No gift tax implications: Although there is no gift or inheritance tax in Florida, a lady bird deed can help avoid federal gift tax implications because the transfer isn’t deemed a completed gift during your lifetime.

Notably, a lady bird deed can also safeguard non-homestead properties from Medicaid. Although Medicaid is generally not permitted to assert a claim against a person’s homestead after their passing, Medicaid can collect the amounts paid for their care from the assets in their probate estate. Because a lady bird deed allows property to pass outside of probate, it can offer crucial protections to a non-homestead property and shield it from Medicaid claims.

Should You Use a Lady Bird Deed or a Trust?

Using a lady bird deed is typically a better option than a trust if your primary goal is to transfer real estate upon your passing. However, if you have a significant amount of assets apart from your home, a trust can allow you to manage all of your assets together. A trust may also be more advantageous if you would like to specify rules for distribution or you have complex family dynamics. In addition, while a lady bird deed only becomes effective upon your passing, a trust can designate a trustee who will manage your entire estate in the event you become incapacitated.

Importantly, a lady bird deed can be used together with a trust to increase flexibility in estate planning. In such cases, the trust would be the named beneficiary on the deed and the property would automatically be transferred into the trust upon your death. This can be a useful strategy to transfer property to minors and provide additional asset protection. Since the terms of the trust would govern distribution, this can give you more control over what will happen to the property when you pass.