Lady Bird Deed in Florida: Pros and Cons

A lady bird deed (also called an enhanced life estate deed) is a legal document that automatically transfers property to someone else when the owner dies. It allows the owner to keep full control of the property during their lifetime. The owner can sell, mortgage, or change beneficiaries without needing their consent. In Florida, using a lady bird deed is a simple and inexpensive way to avoid probate.

How Does a Lady Bird Deed Work in Florida?

A lady bird deed transfers a remainder interest in property to designated beneficiaries while granting the owner an enhanced life estate. The enhanced life estate lets the owner control and possess the property while living. When the owner dies, the property automatically transfers to the designated beneficiaries (called “remaindermen”) without probate.

Why Should You Avoid Probate?

Probate is a time-consuming and expensive process that settles a person’s estate. Florida requires attorney involvement for formal probate, making it an expensive and lengthy process for families. By using a lady bird deed, you can avoid probate for a person’s real property in Florida.

Can You Keep Your Homestead with a Lady Bird Deed?

In Florida, using a lady bird deed to transfer property does not affect the homestead status or tax exemption. Property taxes remain unchanged, and the property stays protected from most creditors.

Why Is It Called a Lady Bird Deed?

The deed is called a lady bird deed because former President Lyndon B. Johnson’s legal team used “Lady Bird” as a fictional name in an example deed created to explain the concept. The name stuck and became a common informal term for the enhanced life estate deed, though it has no legal connection to Lady Bird Johnson.

Requirements for Lady Bird Deeds

For a lady bird deed to be valid in Florida, it must include the following:

1. Grantor – The current property owner must sign the deed before two witnesses and a notary.
2. Enhanced Life Estate – The grantor must keep control over the property during their lifetime.
3. Remainder Beneficiary – The deed must name beneficiaries who inherit the property upon the grantor’s death.
4. Legal Description – A formal legal description of the property must be included (not the postal address).
5. Homestead Provision – For homestead properties, the deed must confirm the property remains the owner’s homestead.

Lady Bird Deed vs Trust

A lady bird deed works best for simple estate plans where your primary goal is to transfer your home seamlessly. A trust is better for managing multiple assets, providing detailed inheritance instructions, and offering creditor protection to the beneficiaries. Trusts also allow greater control over distributions and can manage assets for minors or beneficiaries with special needs.

Steps to Getting a Lady Bird Deed

1. Research the full legal description of the property.
2. Draft the deed with a reserved enhanced life estate.
3. Sign the deed in the presence of two witnesses.
4. Record the deed in the county records.

The person receiving the property after death does not need to sign the deed.

Advantages of Lady Bird Deeds

The advantages of a Lady Bird deed include avoiding probate, keeping full control of the property during the owner’s lifetime, and allowing automatic transfer to beneficiaries upon death. It also protects against Medicaid recovery, permits refinancing or sale without consent, reduces estate planning costs, and preserves the step-up in basis for capital gains tax purposes.

A lady bird deed avoids probate.

Florida lady bird deeds allow property owners to transfer on death to named beneficiaries automatically without going through the probate court system.

Lady bird deeds are less expensive and more effective than living trusts.

In Florida, a lady bird deed is a simpler and less expensive way to transfer property upon death than a living trust. If your primary concern is transferring your home without probate, a lady bird deed is usually a better idea than a revocable trust.

A lady bird deed is simple to set up.

A Florida lady bird deed can be set up in about one week. All you need to do is (1) get the legal description from the prior deed, (2) draft the new deed with the designated beneficiaries and enhanced life estate language, and then (3) record the deed in the county records.

A lady bird deed can be changed.

With a Florida lady bird deed, the property owner is allowed to change their mind at any point during their lifetime. The property owner can enter into a new deed that gives the remainder interest to someone else or that cancels the lady bird deed entirely.

A lady bird deed provides tax benefits.

With a lady bird deed, the beneficiaries get a step up in basis in the property. That means they do not pay taxes on the increase in value of the property that occurred during the owner’s lifetime.

Disadvantages of a Lady Bird Deed in Florida

The main disadvantage of a lady bird deed in Florida is its limited protection against creditors during the owner’s lifetime. Additionally, title insurance or financing may be more challenging to secure. It also requires careful planning to avoid unintended Medicaid consequences or disputes among beneficiaries.

Lady Bird Deeds vs. Quitclaim Deeds

Unlike a lady bird deed, a quitclaim deed transfers full ownership from the grantor to the grantee immediately upon signing.

In contrast, a lady bird deed keeps full ownership with the grantor during their lifetime and only transfers the property to the designated beneficiaries, known as remaindermen, upon the grantor’s death.

Using a Lady Bird Deed for Medicaid Planning

A lady bird deed can be a useful tool in Florida for people who qualify for Medicaid and who are concerned that the government will be able to take non-homestead properties after their death.

In Florida, a person’s homestead is protected from creditors with very few exceptions. Medicaid cannot look to the homestead for collection.

However, Medicaid can collect from non-homestead properties the amounts paid for care during the owner’s lifetime. Medicaid can assert a claim against assets in a person’s probate estate. A lady bird deed transfers property after death outside probate so the property is not part of the decedent’s probate estate upon death. In this way, non-homestead properties are kept out of the probate estate and are protected from collection by medical claims or any other creditors after the property owner’s death.

Tax Implications for Lady Bird Deeds

A lady bird deed does not have any negative tax consequences. Transferring property by lady bird deed does not trigger a gift tax. The transfer is not a completed gift during the lifetime of the property owner.

In addition, the beneficiary of the lady bird deed should still enjoy a step-up basis in the property. A stepped-up basis means that if the beneficiary eventually sells the property, the beneficiary will pay income tax only on the appreciation in value from the date when the original property owner died.

What Happens to a Lady Bird Deed with a Civil Judgment?

There are different considerations for lady bird deeds if a money judgment has been issued against either the current owner or the designated remainder beneficiaries.

Judgment Against Current Owner

A lady bird deed does not protect an owner’s real property from creditors, other than a homestead, if there is a recorded civil judgment against the owner. A judgment becomes an automatic lien on all real property owned by the judgment debtor in any county in which the judgment is recorded, with the exception of homestead property.

A judgment lien would automatically attach to any non-homestead property that the debtor has conveyed in a lady bird deed. The judgment lienholder could foreclose the lien on the property.

Judgment Against Remainderman

A civil judgment against a named remainderman of a lady bird deed does not affect the owner’s interest in the property during the owner’s lifetime. This is true because the remainderman’s interest in the property does not vest until the owner’s death. Therefore, there is no legal interest to which the judgment can attach as long as the owner lives. Even if there is a judgment against a remainderman of a lady bird deed, the current owner retains full control over the property and is not affected by the judgment.

Tax liens are different. An IRS lien against a remainderman attaches to the property once the remainderman is named on the lady bird deed.

Getting Title Insurance with a Lady Bird Deed

Most major title insurance companies fully understand lady bird deeds and are not concerned about insuring the title of a property subject to a lady bird deed. Title companies should not require the signature or consent of the people listed as remaindermen (designated beneficiaries) when the enhanced life estate owner sells the property because the beneficiaries have no vested property interest.

Some smaller or less experienced title insurance companies may not understand a lady bird deed, and these companies may require the remaindermen to sign a release. Even worse, the companies may require any judgment holders against the remaindermen to release any claim of lien against the properties. These requirements stem from a lack of understanding about how lady bird deeds work.

Property insurance is typically acquired in the grantor’s personal name prior to executing a lady bird deed.

Lady Bird Deed FAQs

Below are answers to some common questions about lady bird deeds in Florida.