A “Lady Bird Deed” (or more accurately called an “Enhanced Life-Estate Deed”) is a type of deed which provides the grantor–i.e. the real estate property owner–with certain rights during life, with the remaining interest going to a named grantee at the grantor’s death. The grantee under a Lady Bird Deed receives a “remainder” interest.. This means that the grantee gets title to the property upon the death of the grantor but has virtually no rights during the grantor’s life. Florida is one of a list of states that recognize the use of this type of deed.
Since a Lady Bird Deed allows transfer of real property at death without requiring probate in Florida, it is sometimes an attractive tool in the estate planning arsenal. While a Lady Bird Deed is a useful estate planning tool, there are some serious drawbacks. Among these are the following:
Homestead. Spouses and minor children have certain interests in a grantor’s homestead property. A Lady Bird Deed should never be used for homestead when the grantor has a spouse or minor children. Doing so can result in an ineffective transfer.
Creditors and the IRS. It is clear that an IRS lien can attach to a grantee’s remainder interest. If the grantor sells the property and the remainder grantee has an IRS lien, that lien will have to be satisfied. On a related note, it is not clear in Florida whether a general creditor’s claim can attach to a remainder interest arising from a Lady Bird Deed. Most likely, if the lien does attach, it would do so only upon death of the grantor.
Title Insurance. A well-drafted Lady Bird Deed contains language that states that the grantor can transfer the property without the grantee’s consent or approval. However, some title insurance companies still require that the grantee sign a quit-claim deed in order to allow a conveyance which they will insure.
Less Flexibility with Distribution. With a Lady Bird Deed, your only viable distribution is to a reminder grantee or grantees. However, you do not have the same flexibility as with other estate planning tools. For example, if John transfers his house via Lady Bird Deed to Ronald, what happens if Ronald dies first? If the same transfer were accomplished by means of a Trust, John could leave the house to Ronald, if surviving, and if not surviving, then to Susan. Also, what if John does not want Ronald to receive the property all at once? Neither of these can be accomplished way by Lady Bird Deed but can be done through a Trust.
In our estate planning practice at Lins Law Group, P.A., we use Lady Bird Deeds very sparingly. If there is an unmarried grantor with no minor children, that’s a starting point. However, we also look at whether a grantee is only one of several children to whom the grantor wants to devise the property at death. In our experience, a Lady Bird Deed works best when there is only one grantee. Otherwise, if the grantor dies and there are multiple grantees, title vest in all of their names and it will require mutual cooperation in order to sell or transfer the property. On the other hand, if the property is placed in a Trust, the Trustee can liquidate the property without involving all of the beneficiaries and then the proceeds can be distributed.
Before utilizing a Lady Bird Deed, make sure you consult with an experienced estate planning attorney. Failing to do so might result in a worse outcome than you anticipate.