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What is a Lady Bird Deed?

President Lyndon B. Johnson and Claudia Alta “Lady Bird” Johnson

The Lady Bird Deed is a very hot topic in Florida (no pun intended). Few know, however, what exactly a “Lady Bird Deed” is and where did that odd name come from?

If you can recall your history lessons, you might remember that President Lyndon B. Johnson was married to his wife named Claudia Alta “Lady Bird” Johnson. Well, in the 1980’s a Florida lawyer named Jerome Ira Solkoff, illustrated the concepts of the Lady Bird Deed in his educational materials. He used President Johnson’s wife, Claudia Alta “Lady Bird” Johnson, as a fictional character in his fact pattern to illustrate how the deed functioned and since then the name has stuck (especially as the deed grew in popularity).

Enhanced Life Estate Deed

Now that you’ve had a quick history lesson, let’s dive into a legal lesson. The Lady Bird Deed — also known as an “Enhanced Life Estate Deed” — is only offered in five states (Florida, Texas, Michigan, Vermont, and West Virginia) and is currently very popular in the state of Florida for a variety of reasons.

These types of deeds are flexible, extremely cost-effective, have Medicaid perks and function similar to a Revocable Trust in regard to having your real property (including your Florida Homestead), and avoid the tedious and burdensome probate process (although in a much more restricted and limited way than a Revocable Trust may offer).

Preservation of Homestead Benefits and Real Property Rights

The Lady Bird Deed does not become effective or triggered, until the death of the Grantor (owner of the real property) listed on the Lady Bird Deed. Typically, the Grantor is a husband and wife. The surviving spouse will also continue to be the Grantor after the first spouse passes away. Since the Lady Bird Deed does not pass title until the Grantors’ death, the Grantor possesses all of their rights to the real property during their entire lifetime.

In other words, the Grantors will retain their homestead benefits such as their tax exemption and homestead creditor protections, as well as their rights to sell the real property, lease the real property, revoke the deed, change the deed’s beneficiaries, or otherwise transfer ownership interest in the real property, without any required consent or permission of their selected beneficiaries on the deed (remainder interest holders), until the Grantors all pass away.

Probate Avoidance

When the Grantor becomes deceased, the real property will then pass on to the Grantee (usually their children or other selected beneficiaries) listed on the deed without the need to file a Petition for Homestead or a Petition for Administration in the probate court. Since the beneficiaries were placed on the Lady Bird Deed during the life of the Grantor, the real property will pass to beneficiaries upon the Grantors’ death automatically and without the need of probate.

This is a concept that is analogous to listing a paid-on death beneficiary on a savings account at the bank in order to avoid probate court. Title will pass to the selected beneficiaries listed on the Lady Bird Deed upon the death of the Grantor by simply filing a death certificate in the official records of their county.

Medicaid Planning

Some other benefits of the Lady Bird Deed fall into Elder Law planning. A huge perk with the Lady Bird Deed is that Medicaid will not consider the Lady Bird Deed transfer as an ineligible transfer of assets; which could otherwise prevent the transferring homeowner (Grantor) from getting Medicaid Benefits within five years of the real property transfer. This is a non-issue when correctly utilizing the Lady Bird Deed as the transfer will not be counted against the Grantor regarding Medicaid.

Retained Control: Flexibility to Sell, Refinance or Rent your Real Property

Usually, parents have good intentions by putting their children on the title while they are still alive since their understanding is that the real property will easily pass to their children without the need of probate court and all the headaches and costs associated with it. Unfortunately, these good intentions and cost-saving shortcuts, can backfire on the parents and not only prove financially draining but potentially dangerous to preservation of the amicable family dynamics.

For example, if the parent’s wanted to sell their real property for any reason, maybe they need to downsize to a more manageable home, or they want to liquidate their real property in order to spend it on a dream vacation, but their children decide this is not a good idea, the parents are going to have a very hard time getting the real property to market and sold without the help a litigation attorney. There will also probably be a war with their children, which will most likely end with them being disinherited in their parent’s estate plan.

This situation is avoided with the Lady Bird Deed, as the beneficiaries on the deed, will have no right to stop the parents from selling their real property in order to embark on a dream vacation with the proceeds, refinance their real property or even rent it out for profit.

Creditor Protection

Another huge benefit of the Lady Bird Deed is that the Grantors (parents in this example again) are not subjected to their selected beneficiaries’ (usually their children) creditors. This is contrary to the issues that parents typically and accidentally subject themselves to by adding their children to the title (usually as joints tenants with rights of survivorship) via a Quit-Claim or Warranty Deed.

This serious issue is often innocently overlooked and subjects parents to their children’s creditors. You may think, “Oh no, my Johnny has zero creditors, he pays all of his bills on time and has an 850-credit score”, but the reality is an 850-credit score has nothing to do with the fact that if good-ole Johnny boy gets into a serious car accident and the injured party goes after him; your assets may be available to satisfy their claims since Johnny is on the title to the deed with you.

Don’t worry though, these issues can be simply avoided by utilizing the Lady Bird Deed and your real property will still get to Johnny (but without you losing sleep or assets over it).

Lady Bird Deed Recap of Benefits

  • Full Control of Real Property: Grantor has full control of the real property during life.
  • No Probate: Automatic transfer of the real property upon death of the Grantor.
  • Creditors: Grantor is not subject to future beneficiaries’ creditors.
  • Medicaid: Not considered as an ineligible transfer of assets.
  • Cost-Effective:  Reasonable fees to set up and avoids probate fees in the future.

If you should have any questions or would like to discuss preparing a Lady Bird Deed, I may be reached at anthony.cetrangelo@henlaw.com or by phone at 239-344-1358.