What Should You Know About the Lady Bird Deed?

A “Life Estate” deed is a specific type of deed known as a “Lady Bird” deed. This type of deed enables you to transfer real estate to a designee after your death without putting the property through the probate procedure. Adopting this technique into your estate plan may benefit you, depending on the specifics of your situation. However, before deciding, you should thoroughly understand what this deed is and is not. 

How Does a Lady Bird Deed Work?

You can transfer the title of real property to another person using a Lady Bird deed and keep complete control over how the property is utilized and disposed of for the rest of your life. Doing so is referred to as retaining a life estate in the property. Being the grantor and holder of the life estate, you have a responsibility to the person who will receive the property after your death (often referred to as the grantee or remainder beneficiary) to maintain the property’s value. 

Additionally, you are not permitted to sell or mortgage the property. You cannot revoke the grantee’s interest in the balance of the property if you cancel the deed. However, a Lady Bird deed is characterized as an “improved” life estate since it enables you to keep rights to the property after the life estate expires.

For the deed to be considered a Lady Bird deed, the rights must be spelled out very specifically in the document. These kinds of deeds give the grantor the ability to keep the homestead until the grantor passes away. The homestead is automatically transferred to a grantee (for instance, the grantor’s child) without going through the probate process.

Advantages of Lady Bird Deed

One of the primary advantages of utilizing a Lady Bird deed as opposed to a conventional life estate deed is the grantor’s ability to maintain jurisdiction over the property even after the deed has been transferred. A conventional life estate deed gives the grantee the right to utilize the property for the rest of his life; nevertheless, the grantor forfeits the ability to change his mind at any time. After the transfer of a typical life estate, the grantor loses the right to sell, mortgage, convey, gift, or otherwise terminate the interest of the residual beneficiaries without the grantee’s permission.

Although a Lady Bird deed is comparable to other types of deeds as it enables the grantor to retain a life estate while also transferring a future interest in the property, this deed also enables the grantor to continue to exercise full control over the property during their lifetime. During this time, the grantor does not need the approval of the beneficiaries who will inherit the remainder of the property to sell, use, or mortgage the property

The grantor of a Lady Bird deed is exempt from paying gift taxes for the transfer of the remainder interest, in contrast to the grantor of a regular life estate deed, who may be required to pay such taxes. This is because the grantor maintains the right to revoke the beneficiary’s right to the residual interest after it has been transferred to them.

Disadvantages of a Lady Bird Deed

When considering a Lady Bird deed, you should be aware that despite being a useful tool for estate planning, there are also some drawbacks to consider.

The fact that the Lady Bird deed can only be used to dispose of real property is probably the most significant disadvantage. This indicates that if you have any financial assets to pass on or need to name a guardian for minor children, you will still be required to execute an additional instrument such as a will or trust or a declaration of guardian.

In addition, if you wish to sell the property or get a mortgage on it, having a Lady Bird deed on the title could make it more difficult for you to buy title insurance. When there are many remaindermen, some title insurance firms may hesitate to insure a title subject to a Lady Bird deed.

Last but not least, most states do not offer Lady Bird deeds. Hence, the usefulness of this method as an estate planning tool is severely limited. 

Is a Lady Bird Deed Better Than a Trust?

Your requirements for estate planning will determine whether a trust or a Lady Bird deed is “better” for you to use. Even while trusts and Lady Bird deeds both provide you the ability to circumvent the probate process, trusts are typically the preferable option when it comes to managing intricate estates or dividing up complicated properties. However, the Lady Bird deed is more effective when distributing modest property, such as a residential dwelling.

Because the Lady Bird deeds are easier to create than trusts, the cost is far lower. You can continue receiving Medicaid benefits even after transferring your property via a Lady Bird deed since you will not be punished for the transfer, nor will your beneficiaries have to worry about the possibility of Medicaid reimbursement after your passing.

Trusts, as opposed to Lady Bird deeds, provide an additional advantage in confidentiality for their beneficiaries. On the other hand, trusts provide you with much more leeway and enable you to leave explicit instructions and constraints on when and how the property should be distributed. Trusts also give you a lot more money.

How to create a Lady Bird Deed?

Despite the widespread recognition and application of the Lady Bird deed, no formal regulation controls their usage in real estate transactions. Due to the lack of adequate guidance, It’s essential to ensure that It’s correctly interpreted when the original life estate tenant passes away.

You must confirm whether companies acknowledge and ensure a Lady Bird deed to determine if the deed is legitimate. For this reason, inexperienced drafters should avoid attempting to create such deeds. It’s always best to seek a qualified and trained professional to assist with the creation of a Lady Bird, ensuring that your goals are achieved, and assets are properly protected.

The Bottom Line

Those with very few assets and not able to establish a living revocable trust may find that a Lady Bird deed offers a valuable option to the probate avoidance process. 

It’s highly recommended that you hire a highly competent attorney if you require assistance in determining whether a Lady Bird Deed is the most appropriate legal document for your circumstances. 

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