Does Your Estate Plan Need a “Lady Bird Deed”? Part 1
Sep 19, 2022 - Florida Estate Planning by Moorhead Real Estate Law Group
What is a Lady Bird Deed?
By Amelia Beard and Madison Leonard
The “Lady Bird Deed” – officially called an Enhanced Life Estate Deed – is an increasingly popular tool used in Florida estate planning. If you search for how this unique deed got its name, you will most likely find a few different theories. One theory is that the attorney who created the concept of the Lady Bird Deed used the name of former First Lady, Claudia Alta “Lady Bird” Johnson, in an example explaining how this type of deed works. Another theory is that former President, Lyndon B. Johnson, used this type of deed as a part of his estate planning. Although there are multiple theories as to how exactly the name came about, we do know that the Lady Bird Deed is named after the former First Lady.
The best way to understand a Lady Bird Deed and how it works is to put it into action. Owen owns property with his spouse, Olivia, (the “Owners”). The Owners have two children, Rebecca and Reed. The Owners want their children to inherit their property, but only after the Owners have both passed away. With a Lady Bird Deed, the Owners give an ‘enhanced life estate’ interest in real property, and then a ‘remainder’ interest in the property to their children (“Remaindermen”).
A ‘life estate’ alone only gives a person the ability to occupy the property during their life; this person is called a life tenant. A life tenant cannot sell or borrow against the property. But the holder of an enhanced life estate retains ownership and control over the property – they are free to sell, mortgage, or modify the property. When the Owner(s) holding the enhanced life estate pass away, a Lady Bird Deed transfers the property automatically, by operation of law, to the remaindermen. Using our example, Owen and Olivia retain their property ownership with complete control, but when they pass away, the property transfers to their children, without the need for probate administration.
What if Owen and Olivia go ahead and put their children on the title to their property? Although Owen and Olivia might have good intentions by doing so, there are several reasons why they should not put their children on the title while they are still alive. For example, if Owen and Olivia want to sell or mortgage their property, their children would have the right to stop them. Additionally, by putting their children on the title, Owen and Olivia create the risk of losing their homestead exemption. Lastly, Owen and Olivia could expose their property to the creditors or future ex-spouses of their children. These potential issues are all easily avoidable by using the Lady Bird Deed in your estate planning.
Now you understand what a Lady Bird Deed is and how it works. Next week, we will publish Part 2 where we will drill down on the specific advantages and disadvantages of a Lady Bird Deed.
Amelia Beard, Partner and Managing Attorney of Moorhead Law Group’s Santa Rosa Beach, Florida office. Her practice includes all aspects of real estate development, financing, closings, and disputes; probate and estate planning; business formation; and civil litigation. Amelia’s favorite aspect of being an attorney is working with clients, counsels, and stakeholders to find creative, practical, and efficient resolutions. She can be reached at 850.608.0112.
Madison Leonard is an Associate Attorney in Moorhead Law Group’s Pensacola, Florida office. Her practice areas include probate and estate planning; business formation; real estate transactions; and real estate development. She can be reached at 850.202.8522.
About Moorhead Law Group: Moorhead Law Group is a boutique firm serving the transactional and dispute resolution needs of businesses and individuals as trusted advisors with an unwavering commitment to excellence. It has locations in Pensacola and Santa Rosa Beach, Florida. The firm focuses on business litigation, community associations, real estate law, and trusts and estates. Its experienced attorneys serve clients throughout the region including Northwest Florida and South Alabama. For more information about Moorhead Law Group, visit www.moorheadlaw.com.