Does Your Estate Plan Need a “Lady Bird Deed”? Part 2
Advantages and Disadvantages of the Lady Bird Deed
By Amelia Beard and Madison Leonard
In Part 1 of Does your Estate Plan Need a “Lady Bird Deed”? we explained exactly what this ‘deed’ is and how it works. Check that out here: Does Your Estate Plan Need a “Lady Bird Deed”? Part 1 – Moorhead Law Group. In Part 2 we will discuss the advantages and disadvantages of using the Lady Bird Deed in Florida.
Advantages of Lady Bird Deeds
One of the main benefits of having a Lady Bird Deed is that the property automatically passes to the remainder beneficiaries upon the death of the property owner without the need for the property to be administered through the probate court. Other advantages include:
- Maintain Complete Control. Lady Bird Deeds allow the life estate holder to maintain control over the property while they are alive, including the ability to change their mind about the deed itself.
- Continued Homestead Exemption. The transfer of property using a Florida Lady Bird Deed does not take place until after the death of the life estate holder. Thus, the remainder interest created by a Lady Bird Deed has no effect on the present ownership of the real property, and the property owner remains eligible for the homestead exemption.
- No Immediate Doc Stamps. Because there is no immediate transfer of ownership when using a Lady Bird Deed, the property owner may avoid the assessment of immediate Florida documentary stamps if they retain the life interest in the property. If this is the case, then only minimal taxes will be due at the time the deed is created.
- Stepped-up Basis for Determining Capital Gains Taxes. The individuals who become the owners upon the life estate holder’s death will receive the benefit of a “stepped-up basis” for purposes of calculating their capital gains taxes, which means that their tax basis is the value of the property on the date of the owner’s death. This allows for significant tax savings.
- Maintain Medicaid Eligibility. Because a Lady Bird Deed allows the property owner to maintain use, control, and ownership of the property, it is not considered a transfer of property for Medicaid eligibility purposes. Thus, a Lady Bird Deed will not affect your Medicaid eligibility because the transfer is not a completed transfer of ownership. Additionally, because Lady Bird Deeds allow property ownership to pass outside of probate, your property will still be protected after you have passed.
Disadvantages of Lady Bird Deeds
Although there are several benefits to Florida Lady Bird Deeds, there are certain drawbacks to be considered before including the deed in your estate plan. The disadvantages of using Lady Bird Deeds include:
- If the Owner owes money to different creditors, a lien may “attach” to the remainder interest. This means that if the Owner dies and the beneficiaries decide to sell the property, they will have to pay the lien against the property for the debts owed. It is unclear whether the property owner’s creditors can still make a claim against the property or beneficiaries after the owner dies.
- Banks and title companies may require remaindermen to join in a conveyance or a mortgage (when, technically, they should not have to) because of misunderstandings regarding the non-vested nature of the remainder interest.
- Title Insurance. Another disadvantage involves title insurance. Title insurance protects from financial loss that can occur when there are issues with the real estate title. Title companies tend to have varying requirements for insuring titles subject to a Lady Bird Deed. Some title companies may require the remaindermen to sign off on any transfer before agreeing to provide title insurance. This is because of the possibility of future title disputes that may be raised due to the failure to include certain beneficiaries. As a firm that is familiar with local title companies, Moorhead Law Group can help guide you to those companies which may be more inclined to insure property subject to a Lady Bird Deed.
- Multiple Beneficiaries. When there are multiple beneficiaries, a Lady Bird Deed should be used with caution. A Lady Bird Deed may complicate matters if the multiple beneficiaries do not agree on how the property should be used or transferred after the death of the property owner. For more information on joint ownership, check out the video here: https://www.moorheadlaw.com/the-moor-you-know-episode-3-joint-ownership/
Overall, the Florida Lady Bird Deed is a significant estate planning tool. Depending on your specific circumstances, a Lady Bird Deed may be the best way for you to avoid probate and best satisfy your estate planning needs. Moorhead Law Group would be happy to guide you through the decision-making process and ensure the necessary terms are included in your estate plan.
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.