Lady Bird Deed vs. Life Estate Deed

Written By Jay Kreutzer

Traditional Life Estate Deed

A Traditional Life Estate Deed allows property to be transferred at death, while letting the current owner retain full use of the property during their lifetime. The key parties involved are:

  • Grantor: The current owner of the property.

  • Life Tenant: The person who gets the right to live on the property for their lifetime.

  • Remainder Beneficiary: The future owner who inherits the property after the Life Tenant's death.

Benefits:

  • Avoids probate.

  • Simplifies inheritance.

  • Provides lifetime housing for the Life Tenant.

Drawbacks:

  • The Remainder Beneficiary (future owner) gains a partial ownership interest before the Life Tenant dies.

  • Creates co-ownership, limiting the Life Tenant's control over the property.

  • The deed is irrevocable, and the Grantor cannot change their mind. The Grantor and Life Tenant cannot sell or mortgage the property without the Remainder Beneficiary's consent.

Lady Bird Deed (Enhanced Life Estate Deed)

Florida is one of the few states that allows the use of a Lady Bird Deed, also known as an Enhanced Life Estate Deed. While similar to a traditional life estate deed, it has several key differences.

Key Differences:

  • Traditional Life Estate Deed: The future owner (Remainder Beneficiary) gains immediate rights to the property.

  • Lady Bird Deed: The future owner has no rights until the Life Tenant's death.

Benefits:

  • CONTROL. A Lady Bird Deed is revocable and can be changed. The Grantor retains full control over the property with a Lady Bird Deed. This means the Grantor can sell, mortgage, change beneficiaries, or modify the estate plan at any time before the Life Tenant's death.

  • MEDICAID PLANNING. This type of deed avoids the Medicaid 60-month lookback period since no transfer happens until death, which protects Medicaid eligibility.

  • TAX BENEFITS. No federal gift tax and beneficiaries receive a step-up in basis, reducing capital gains taxes when they eventually sell the property.

Probate Overview

Probate is the legal process where the court oversees the transfer of assets after someone dies. It involves:

  • Approving transfers of real and personal property.

  • Ensuring creditors are paid.

  • Allowing time (90 days) for creditors to file claims.

  • Allows time for beneficiaries and other persons to file claims and objections.

  • Usually takes at a minimum of 90 days and most times 6 months to a year

  • Requires the use of an attorney and attorneys fees and court costs

THIE USE OF A TRUST AND/OR A LADY BIRD DEED AVOIDS PROBATE

A properly drafted Lady Bird Deed, when used alongside a Trust, is an effective way to protect your assets and ensure they are passed to your loved ones without undergoing the lengthy probate process.

Jay Kreutzer
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