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Lady bird deed - Legal doc for conveying property to heirs

Author: Jessica Bennet
Community Mentor
Ask Jessica
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:
  1. 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.

  2. 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.
Posted on: 29th Dec, 2006 12:07 pm
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 Jholzer,

Welcome to Mortgagefit forum.

Ladybird deed or Enhanced life estate deed can be used to avoid probate procedure.

Let me explain how it works.

Owner(s)/grantor(s) of the house make a deed and name his beneficiaries as grantee(s). With such a deed the person retains a life estate upon the property with the right to sell the said property any time he likes. By making the deed:
  • Ownership remains with the grantors,
  • The grantors retains the right to revoke the deed at any time and
  • If the property is not sold during the lifetime of the grantors, then it passes on to the named grantees without the need for a probate after the death of the last grantor.
Let me know if you have any other question about this type of deed.

Colin
Posted on: 29th Dec, 2006 12:34 pm
Hi Jholzer,

I have some information on why it is called "Ladybird Deed".

President Lyndon B. Johnson once used this deed to transfer property in his wife’s name, "Lady Bird" Johnson. Henceforth, this deed got recognized by her name.

David
Posted on: 29th Dec, 2006 01:42 pm
Thanks for the information, so is there any difference between ladybird and a regular life estate deed?
Posted on: 29th Dec, 2006 01:59 pm
Hi Jholzer,

Welcome back.

In a regular life estate deed, the owner of the property retains a life estate and continues to use the property during his life time. But he cannot sell the property without the agreement & participation of the named beneficiary.

Whereas in Ladybird deed the owner retains his sole right of selling the property, giving it to any other person or change the title without requiring consent from the beneficiary.

Thanks
Blue
Posted on: 29th Dec, 2006 02:19 pm
Another advantage of Ladybird deed is that the property is not subject to any liens that may arise against the named beneficiaries of the property.

It means that if there are judgment liens, tax liens or any other type of lien against the beneficiary, those liens will not get attached to the property.

B.S.
Posted on: 29th Dec, 2006 02:39 pm
Florida, Texas, Ohio, California, Kansas are some of the states where ladybird deed is applicable. It acts an alternative option to traditional life estate deed.

However, the deed is not used in cases where a life estate can result in too much of capital gains taxation. In such cases, a living trust can be used.
Posted on: 02nd Jan, 2007 03:34 am
My mother is a widow and she is wondering if a Lady Bird Deed would protect her house from having to be sold to pay for a nursing home should she ever end up being in one.
Posted on: 01st Mar, 2007 07:28 pm
Welcome Drj,

Your mother can protect her house being sold off by using the ladybird deed. This type of deed helps the grantor to retain ownership of property throughout his lifetime with the right to sell it whenever required. The grantee or the beneficiary can only sell the property after the grantor's death.
Posted on: 03rd Mar, 2007 11:17 pm
My father (widowed) is in a nursing home and is applying for medicaid. His only asset is his home. I was told that he needs a Lady Bird Deed to protect his home from being taken by medicaid for nursing home charges. My sister is trying to quit claim the deed with the following wording: Frank Trico, a single person, 1st party to, Carol Frank, a single person and not as tenant in common, reserving unto Grantor a life estate, without any liability for waste, second party whose post office is 8888 second st...Orlando, FL
Witnesseth, that the said first party, for and in consideration of Ten and No/100 dollars by second party, the receipt whereof is hereby acknowleded, has remised, released and quit-claimed, and by these presents does remise, release and quit-claim unto the said party of the second part all the right, title, interest, claim and demand which the said first party has in and to the following decribed lot, piece, or parcel of land , situate, lying and being in the County of........
To me this is a Quit Claim Deed and she is not following the Lady Bird rules.....please help. Thank you.
Posted on: 27th Apr, 2007 02:39 pm
Hi Sammy,

Welcome to Mortgagefit forum.

Your sister is making a quit claim deed with your father named as the grantor who will have a life estate meaning until his death he will have ownership rights but will not have the right to sell the home. While if a lady bird deed is used then he will retain his right to sell the home any time he wishes.

In your situation a quit claim deed will also serve the purpose of saving the home from being taken to pay for nursing home charges. The reason is that after home is quit claimed it will not remain his property and any claim cannot be placed against property which is not part of his assets.

Colin
Posted on: 27th Apr, 2007 03:15 pm
Yes, it seems to be a quitclaim deed with a life estate clause attached to it. It's not a ladybird deed. But I agree with Colin. A quitclaim can also serve your purpose here.

If the house is quitclaimed to you, it will prevent Medicaid from putting a lien on it for up to the full value of the assistance provided to your father.
Posted on: 27th Apr, 2007 09:52 pm
Hi Sammy,

I think a quitclaim deed won't be applicable here. This is because when you quitclaim/transfer property for less than fair market value, the grantor becomes ineligible for the Medicaid benefits for as long as 5 years after the date when the transfer took place. However, the time period for ineligibility of the Medicaid benefits may vary from state to state.

In my opinion, a ladybird deed or enhanced life estate deed will be helpful. Such a deed would allow your father to retain his property which can be exempted from Medicaid claims in his lifetime. Also, the heirs or the beneficiaries can get the property after the death of your father and the home will still be free of Medicaid claims and liens.

I shall suggest that you consult an attorney and ask him to draft a ladybird deed based on the trems and conditions that will be helpful for you to inherit the property free of medicaid claims.

Good luck!!
Posted on: 27th Apr, 2007 10:42 pm
First of all, I would like to know about the state where you reside as the laws on Medicaid may vary from state to state.

I can inform you about laws in Florida. You can then check if the same laws apply in your state.

In Florida, a person applying for Medicaid benefits can protect his/her home from the creditors and lenders under the following circumstances.
  • A spouse or dependent relative of the Medicaid applicant resides in the house.

  • The applicant or his representative states on his/her behalf that he would return home after utilizing the Medicaid benefits.
If the above conditions are satisfied, the home will remain exempt from Medicaid claims throughout the life of the applicant. Also, it will not be subjected to such claims after the death of the applicant in spite of a surviving spouse or heir or a dependent (who depends on the applicant) staying at home.

However, if there is no spouse or dependent or a heir, then the property can be used to satisfy the Medicaid claims.

Hope this is helpful
Posted on: 28th Apr, 2007 02:33 am
BE CAREFUL doing either lady bird deed or quitclaim deed- although, they protect you under medicaid estate recovery - they do not protect for transfer penalties!! which could result in years of private pay at the nursing facility before medicaid ever kicks in
Posted on: 26th Oct, 2007 07:58 am
My Parents live in Florida 65 and 71,and my sister is helping them prepare a ladybird deed. I find out now that my sister will be the only sibbling listed on this deed. Should'nt all 3 Sibblings be listed on this LadyBird Deed?
Posted on: 30th Oct, 2007 08:59 am
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