Creating A Lady Bird Deed In Florida
By: Barry Miller, Esq., of Barry L. Miller, P.A., Offices Orlando
The Florida Lady Bird Deed
Estate planners looking for a probate avoidance strategy that ensures retained control of real estate assets throughout life and automatic transfer upon death should consider an Enhanced Life Estate Deed, colloquially known as a Lady Bird Deed. Also referred to as a ladybird deed, this deed form offers several valuable features that fit the needs of some estate planning scenarios.
Florida is one of only five states where the Lady Bird Deed is available (Florida, Michigan, Texas, Vermont, and West Virginia). Florida property owners who anticipate the possibility of using Medicaid should consider the Lady Bird Deed for a potential fit with their individual situation.
What is a Lady Bird Deed?
Recall that a Lady Bird Deed is an Enhanced Life Estate Deed. The clearest understanding of the Lady Bird Deed can be gained by examining the underlying Life Estate Deed form.
A basic Life Estate Deed changes ownership of real property. This type of deed is designed to transfer real property at death while allowing the owner to retain use of the property during life. Estate planning benefits include avoidance of probate and gift taxes, simplification of inheritance planning, and the provision of lifetime assured housing to survivors or beneficiaries designated by the creator, or grantor of the deed.
As an estate planning tool, the traditional Life Estate Deed has a significant drawback. The deed is a legal transfer of title that effectively creates multiple owners of the same piece of property. This happens because the deed fulfills its function by dividing the subject property into two designated interests and creating three different owner roles:
- Current Owner (Grantor)
- New Owner (Life Tenant
- Future Owner (Remainder Beneficiary)
One interest, the life estate, is held by the grantor of the deed, generally the current property owner. The life estate is a lifetime interest based on the grantor’s lifespan. Usually, the grantor also serves in the role of life tenant, the party that owns and has use of the property.
The other interest is called the remainder interest or simply remainder. This is the interest that passes at the owner’s death. The individual named as the remainder beneficiary has a real ownership interest in the property as the future owner.
The remainder beneficiary is a co-owner of the property, but does not have rights to current possession of the property. Only the life tenant has those rights, with the remainder beneficiary’s interest beginning with the death of the life tenant.
This co-ownership status represents the primary disadvantage of the traditional Life Estate Deed. The grantor loses compete control of the property and is unable to sell it, take out a mortgage, or change what happens to the property after the grantor’s death. The decision to create a Life Estate Deed is irrevocable, and any changes would require the consent of any and all remainder beneficiaries.
This framework of understanding regarding the Life Estate Deed brings the purpose and advantage of the Lady Bird Deed into clear view:
Unlike the grantor of a traditional life estate deed, the grantor of a Lady Bird Deed does not lose control of the property and may deal with it in any way desired without the involvement of any remainder beneficiaries. The property may be sold, mortgaged, or gifted. The remainder beneficiary may be changed, or the entire deed arrangement may be undone.
What are the advantages of using a Lady Bird Deed in Florida?
Along with probate avoidance and retention of the grantor’s ownership control of the subject property, the primary advantage conferred by the Florida Lady Bird Deed is relevant to Medicaid planning.
Medicaid Planning
The Lady Bird Deed is very popular in Florida as a Medicaid planning tool. Medicaid is the joint state/federal program that provides assistance to financially needy individuals who need long-term care in a nursing home or other facility.
To apply for Florida Medicaid, the state’s Institutional Care Program, an individual must provide the Department of Children and Families with a detailed list of all assets. The purpose is to ensure that all available financial resources are used to pay for care before Medicaid funds are used. The value of all qualifying assets, called countable assets, is calculated and used as the basis for creating a Medicaid eligibility waiting period.
A Florida Medicaid applicant must disclose any assets transferred within 60 months prior to the application date. The value of such assets will be used in the calculation of the Medicare waiting period. A Lady Bird Deed provides a way around this problem.
Because the Lady Bird Deed does not take effect until after the grantor’s death, the Florida Department of Children and Families does consider the property to have been transferred for the purposes of the 60-month lookback period. This is true even though the deed has been signed and recorded within the previous 60 months. The Lady Bird Deed transfer has no effect on Medicaid eligibility.
As stated in Section 1640.0613.01 of the Florida ESS Policy Manual governing Florida’s Medicaid program:
If an individual retains life estate using a lady bird deed or life estate with powers, no transfer has occurred. The individual retains full ownership powers in the property and it is only upon their death that the property transfers ownership to the remainderman.
Tax Planning
Lady Bird Deed Florida tax benefits include avoidance of the Federal gift tax. The Lady Bird transfer is an incomplete gift, meaning there is no requirement to file a gift tax return. Effectively, there has been no transfer during the owner’s lifetime.
Moreover, the Florida Department of Revenue assesses minimum documentary stamp taxes on Lady Bird Deed property transfers as long as the grantor of the deed is the same person who retains the life interest.
Another benefit is found in the fact that the beneficiaries are viewed as inheriting the property at the owner’s death. Therefore, if the beneficiaries sell the property, it is taxed on an adjusted basis that ignores any appreciation accrued while title was held by the deceased owner. This lowers Federal income tax liability.
Finally, a transfer of property via a Florida Lady Bird Deed keeps any existing property tax cap in place. Such a cap would normally be lost upon transfer of the property. This results in property tax saving for the owner.
How can I set up a Florida Lady Bird Deed?
The Lady Bird Deed is named for Claudia Alta “Lady Bird” Johnson, First Lady of the United States as the wife of Lyndon B. Johnson, 36th President of the United States (1963–1969). The name stuck when the Florida lawyer who created the deed in the 1980s used the Johnson’s names in a written example showing how the deed worked.
The Florida Lady Bird Deed can be very useful. However, drafting the deed can be tricky. Complications arise when a grantor is not including all children, or if improper language is used. Incorrect drafting may result in the deed being deemed uninsurable by title insurance companies. The property will then go into probate in order to get the deed cleaned up.
Please note this article is for informational purposes only and should not be construed as legal advice. The facts and circumstances of each case, transaction, or matter can differ greatly. You should not use this information as a substitute for consulting with a licensed attorney. Barry L. Miller, P.A., and its attorneys, and staff, do not represent you unless you execute an engagement agreement with the Firm which confirms that representation.
Barry Miller Law is familiar with all aspects of real property law. If you, or someone you know, has legal questions concerning real estate, business or probate law, contact Barry Miller Law for assistance at 407-423-1700 or email us at info@BarryMillerLaw.com for a consultation.
