Posted on: 29th Dec, 2006 12:07pm
Lady bird deed or Enhanced life estate deed is a legal document using which you can transfer property to your heirs while at the same time retaining a life estate along with the right to sell property in your lifetime. This implies that you will own the property till you die and if you'd like to sell, there's no need to notify your beneficiaries. Upon your death, your heirs or beneficiaries named on the deed will be able to take over the property without having to go through probate.
In which states is the deed applicable?
The enhanced life estate deed is acceptable in states like Florida, Texas, Ohio, California, and Kansas.
How does lady bird deed differ from life estate?
There are 2 ways in which an enhanced life estate differs from a regular life estate deed:
- Property sale: Unlike a ladybird deed which allows a grantor to sell property during his lifetime without the beneficiaries' consent, a regular life estate deed is one which doesn't allow you to sell without permission.
- Gift tax implications: A regular life estate allows the grantor to keep a life estate and transfer a remainder interest (estate that remains after grantor's death) to one who'll inherit property. The current owner has the right to occupy and use property. He is entitled to get all the money that can come from his property. But as per IRS rules, the grantor may have to pay gift taxes for transferring the remainder interest.
However, the grantor need not pay gift taxes if he uses a ladybird or enhanced life estate deed. This is so because the grantor has the unilateral right to cancel the remainder interest conveyed to the beneficiary.
How does one benefit from using lady bird deeds?
- Avoid probate: Unlike a Will that requires to be probated, a lady bird deed helps in conveying title without any probate at the time of the grantor's death.
- Protect from creditors: It protects the property from the beneficiaries' creditors during the grantor's lifetime. The creditors cannot place a lien on the property because the beneficiaries have no interest during the grantor's lifetime.
- No capital gains tax: The beneficiaries inherit property at a "stepped-up" basis, which is the value of the property on the day when the grantor passes away. If the beneficiary sells home, obviously there will be no capital gains and hence the grantee does not have to pay capital gains tax.
- Flexible rights: The grantor is legally entitled to sell or transfer property as a gift any time he wishes to do so. He may also take out a mortgage on the property or cancel the remainder interest.
Does ladybird deed affect Medicaid eligibility?
Using ladybird or enhanced life estate deed doesn't make you ineligible for Medicaid as long as you express your "intent to return" after being taken to nursing home. The "intent to return" can be expressed in the form of an affidavit or letter signed by you. Even if you do not express the "intent to return", your home may be considered as an exempt asset for Medicaid eligibility as long as your spouse or relative occupies it when you're not around. Check out if Ladybird deed causes Medicaid penalty.
Which is better - Ladybird deed or quitclaim?
Unlike ladybird deeds, a quitclaim with life estate does not allow the grantor to sell, mortgage or transfer property without the consent of the beneficiaries. The beneficiaries' creditors can easily place a lien on the property as the beneficiaries cannot claim the home as their homestead property. Moreover, if any beneficiary passes away or goes through divorce, his spouse can claim a share of interest in property. In some states, the quit claim or a life estate can even affect the validity of your homestead protection.
Using ladybird deeds make sense if you wish to convey property to your heirs directly without having to prepare a Will. In most cases, it may not affect your Medicaid eligibility. And, the deed offers maximum benefit to your beneficiaries when they take over your property.
Using ladybird deeds make sense if you wish to convey property to your heirs directly without having to prepare a Will. In most cases, it may not affect your Medicaid eligibility. And, the deed offers maximum benefit to your beneficiaries when they take over your property.
I have heard that lady bird deed can be used to avoid probate but not aware of the actual procedure for it. please help
Hi sfed,
If there's a lady bird deed in place and the property is sold after the death of the grantor, stepped up basis is taken into consideration to determine the capital gains tax. However, in this situation the grantor is still alive and I think the original purchase price of the property will be taken into account while calculating the capital gains tax. But you should consult a tax advisor as he/she would be the best person to guide you in this regard.
If there's a lady bird deed in place and the property is sold after the death of the grantor, stepped up basis is taken into consideration to determine the capital gains tax. However, in this situation the grantor is still alive and I think the original purchase price of the property will be taken into account while calculating the capital gains tax. But you should consult a tax advisor as he/she would be the best person to guide you in this regard.
can a spouse remove a deceased spouse name from the property deed and sell the home if he does a lady bird deed? in the state of texas? :?:
Hi laguera,
The spouse does not have to do a lady bird deed to remove the deceased spouse from the property deed. The spouse can file the death certificate of the deceased spouse and other necessary documents as required by the county recorder's office and have the deceased spouse's name removed from the title of the home.
The spouse does not have to do a lady bird deed to remove the deceased spouse from the property deed. The spouse can file the death certificate of the deceased spouse and other necessary documents as required by the county recorder's office and have the deceased spouse's name removed from the title of the home.
in arkansas three daughter, their dad remarried do they have any rights to the father land and other thing the favher owned, along with the new wide :D
along with the new wife.
made a mistake on spelling wide should have been WIFE.
Is this deed legal in the state of Michigan? if so, is it better than putting my daughter's name on the house?
Is the LBJ Deed legal in South Carolina?
do i have to pay inheritance tax on my mothers home that she ladybird to me
To Don,
As far as I know, a lady bird deed is legal only in states like Florida, Texas, Ohio, California, and Kansas. I valid in South Carolina.
To bigdog,
The ladybird deed conveys the title to the grantees, while the grantor retains the right to stay in the property. The grantees become legal owners of the property as soon as the title is transferred to them through the lady bird deed. The grantor has to pay a gift tax, if he transfers the property title to the grantees as a gift. But the grantees are not likely to be subject to any tax for this transfer. However, you can consult an accountant or a tax advisor to know if you need to pay any inheritance tax for this property transfer.
As far as I know, a lady bird deed is legal only in states like Florida, Texas, Ohio, California, and Kansas. I valid in South Carolina.
To bigdog,
The ladybird deed conveys the title to the grantees, while the grantor retains the right to stay in the property. The grantees become legal owners of the property as soon as the title is transferred to them through the lady bird deed. The grantor has to pay a gift tax, if he transfers the property title to the grantees as a gift. But the grantees are not likely to be subject to any tax for this transfer. However, you can consult an accountant or a tax advisor to know if you need to pay any inheritance tax for this property transfer.
my mother is in the nursing home. I am in charge of the will. However I understand MERP will come in to play and the will, will not be effective since she got assistance from medicaid after 2005. How can I secure that the house will not be recovered bymedicaid. my siblings cannot comprehend that since there was a will seekd out by my parents.
If my dad names me as grantee on a LBD for a condo he owns in Florida and we are both full time residents in Michigan...will that work out OK?
Does the law primarily apply to where the property is located or where you are a registered resident? Thanks!
Does the law primarily apply to where the property is located or where you are a registered resident? Thanks!
Hi desperate,
The state has the right to recover the Medicaid costs for nursing and other long-term care facilities from the estate of your mother. But as far as I know, her estate cannot be recovered as long as she is alive and has the intent to return to the property. She could have transferred the property through a lady bird deed to avoid recovery of her estate by Medicaid. However, since she is already in the nursing home, she will not be able to transfer the property. Any such transfer at this point in time can be considered invalid.
Hi Mich,
The lady bird deed has to be in compliance with the property transfer laws of Florida as the property is located there. Though you are a legal resident in Michigan, it should not affect the transfer of the property in Florida. After all, you can reside in a particular state, but own a property in a different state.
The state has the right to recover the Medicaid costs for nursing and other long-term care facilities from the estate of your mother. But as far as I know, her estate cannot be recovered as long as she is alive and has the intent to return to the property. She could have transferred the property through a lady bird deed to avoid recovery of her estate by Medicaid. However, since she is already in the nursing home, she will not be able to transfer the property. Any such transfer at this point in time can be considered invalid.
Hi Mich,
The lady bird deed has to be in compliance with the property transfer laws of Florida as the property is located there. Though you are a legal resident in Michigan, it should not affect the transfer of the property in Florida. After all, you can reside in a particular state, but own a property in a different state.
The power of attorney set up the LB deed with with only his/her name. Is the complete possession of the property transferred to this individual alone or does the "estate" or "remaining beneficiaries of the will" still have any possession or claim to the property? In other words if at death the other beneficiaries are not on the LB deed are they screwed even though the will states to divide three ways?
To Andy,
A will becomes effective only upon the death of the current owner of the property. After his death, the property will be probated and his estate will be divided as per his instructions given in the will. But the lady bird deed becomes effective once it is signed and properly recorded. Thus, if the owner transfers the property to a particular person through a lady bird deed, the deed overrides the will. However, you should consult an attorney regarding this and check out if the lady bird deed could be proved as invalid.
A will becomes effective only upon the death of the current owner of the property. After his death, the property will be probated and his estate will be divided as per his instructions given in the will. But the lady bird deed becomes effective once it is signed and properly recorded. Thus, if the owner transfers the property to a particular person through a lady bird deed, the deed overrides the will. However, you should consult an attorney regarding this and check out if the lady bird deed could be proved as invalid.