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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
My brother inherited a life estate to our parent's home in 1998. He has since mortgaged the property through a local bank. He is, at this time, living in another state, and has not made the mortgage payments in quite awhile, and the bank is threatening foreclosure. We were told that my brother should not have been able to mortgage the property at all without consent of the other 3 siblings, who inherit the life estate if something happens to him. Please help. The hearing is just a few days away.
Posted on: 08th Sep, 2009 02:00 pm
My sister quit claimed her 25% portion of heir property to my daughter, her neice, what entitlement does the neice have and are there and financial penalties to my sister
Posted on: 20th Sep, 2009 11:16 am
Hi troubled,

Since your brother got the mortgage against the property, the lender does have the right to foreclose on the property if he defaults on the loan. If his other 3 siblings inherited the property along with him, I'm not sure how he obtained the mortgage without informing them. However, at this point in time, it's important to stop the foreclosure. The other 3 siblings can refinance the loan in their name and pay off the existing mortgage. This will help them save the home from the imminent foreclosure. They should also consult an attorney and check if the mortgage was obtained fraudulently. In case, your brother did it illegally, the siblings will have a legal recourse to stop the foreclosure.

Hi Mrs. B,

Since your sister transferred her share of the property to your daughter i.e. her niece, the niece now have an ownership right to the property. She is one of the legal owners of the property and is responsible for a portion of the property related taxes. If your sister gifted the property to her niece, she may have to pay the gift tax. However, there are certain gift tax exemptions available, which she can take advantage of.
Posted on: 21st Sep, 2009 04:56 am
Is a ladybird deed the same as a transfer on death deed? Are either of these deeds available in Maryland?
Posted on: 23rd Sep, 2009 07:36 pm
I don't think that the ladybird deed is similar to that of the transfer on death deed. As far as I know, ladybird deed and transfer on death deeds are not accepted in Maryland.
Posted on: 25th Sep, 2009 03:02 am
IN 2006 HEIR PROPERTY WAS TRNSFERRED OVER TO ME THROUGH PROBATE COUT LATER TO FIND OUT THAT ONE OF THE SIBILINGS HAD A DEBT IN EXCESS OF $10,000 AND NOW I'M UNABLE TO USE THIS PROPERTY "FOR THE TRIPLEWIDE THAT I WAS APPOVED FOR" UNTIL THIS IS PAID .PLEASE ADVISE ON WHAT I CAN DO THANK YOU
Posted on: 07th Oct, 2009 05:56 am
Hi SJOHNSON,

Since the debt was incurred by one of your siblings, you are not personally responsible for the debt. However, being the owner of the property, you need to remove the lien that is placed on the property for the debt. You will not be able to use the property until the lien is removed. Thus, I do not see any option of using the property without paying off the debt lien in full. However, you can check with a local attorney and see if there are any possible options for you in this situation.
Posted on: 07th Oct, 2009 11:46 pm
Is the L.B. deed legal in Mass.
Posted on: 10th Nov, 2009 01:57 pm
has it been determined as of this date 12/29/09, that the lady bird deed is a legal instrument in michigan ?
Posted on: 29th Dec, 2009 07:10 pm
Hi Russ and Paul,

As far as I know, a lady bird deed is not applicable in the states of Massachusetts and Michigan. It is allowed only in the states of Florida, Texas, Ohio, California and Kansas.
Posted on: 29th Dec, 2009 10:26 pm
can a live in friend claim any rights to property. (does not share in any bills) if I ladybird the property to my daughters
Posted on: 10th Jan, 2010 07:36 pm
Hi Curious,

The live-in friend cannot claim any ownership rights to the property. Who is on the property title? If you are the one who holds the property, you have every right to transfer the property to your daughters. Your live-in friend does not have any legal right to claim ownership. However, in case you have added your friend to the title, he/she will have certain rights to the property.

Thanks,

Jerry
Posted on: 11th Jan, 2010 01:32 am
HOW TO KEEP A NURSING HOME OR GOVERMENT FROM GETTING YOUR PROPERTY IF YOU HAVE TO GO INTO A RESTHOME
Posted on: 12th Jan, 2010 08:27 am
You can transfer the property to your heirs with the help of a ladybird deed. This will not make you ineligible for the medicaid benefits. However, your spouse or a close relative needs to stay in the property.
Posted on: 13th Jan, 2010 02:42 am
If a Lady Bird Deed is in place and if the Grantor and Beneficiaries wish to sell the property prior to the Grantor's death, is this allowed and if so, is the proceeds of the sale subject to a capital gain tax, using the original purchase price as the basis or the current stepped up basis?
Posted on: 01st Feb, 2010 12:27 pm
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