Lady Bird Deeds

Pros and cons of Florida Lady Bird Deeds

June 20, 2023
Pros and cons of Florida Lady Bird Deeds

What are the pros and cons of Florida Lady Bird Deeds?

Florida Lady Bird Deeds, also known as enhanced life estate deeds, have gained popularity as an estate planning tool. They offer several benefits but also come with certain considerations. In this blog post, we will explore the pros and cons of using a Florida Lady Bird Deed, helping you make an informed decision. Having an experienced attorney to help you decide on the best course of action can be invaluable.

“An experienced attorney can help you weigh the pros and cons of making a lady bird deed.”

First, the pros.

1) Avoidance of probate: A significant advantage of a Lady Bird Deed is the ability to transfer property outside of the probate process. Upon the property owner's death, the property automatically transfers to the designated beneficiaries without requiring probate court involvement, saving time and expenses.

2) Retained control and ownership rights: Unlike other types of deeds, the property owner retains control and ownership rights during their lifetime, including the ability to sell or mortgage the property without the beneficiaries' consent.

3) Medicaid planning: Florida Lady Bird Deeds can be an effective tool for Medicaid planning. By transferring the property while retaining a life estate, individuals can potentially protect the property from being considered a countable asset for Medicaid eligibility purposes depending on the value of the home.

4) Flexibility and revocability: A Lady Bird Deed offers flexibility, allowing the property owner to change beneficiaries or revoke the deed entirely if circumstances change (unlike "adding" someone to your deed).

5) Stepped-up tax basis: Upon the property owner's death, beneficiaries receive a stepped-up tax basis, potentially reducing capital gains taxes if they decide to sell the property.

Next, the cons.

1) Limited in certain states: While Florida recognizes Lady Bird Deeds, not all states have legislation or legal precedent that supports their use. If you own property in multiple states, a trust might be more effective for you.

2) Potential challenges from creditors: Although a Lady Bird Deed may protect the property from probate, it does not provide full protection from creditors. If the property owner faces significant debts, creditors may be able to place liens on the property, potentially affecting its transfer to beneficiaries before their inheritance is received.

3) Occasionally, homeowners who have executed a Lady Bird Deed might have difficulty refinancing the home or obtaining a home equity line of credit.  Some lenders will not lend if a Lady Bird Deed has been executed or might require the remainder grantee beneficiaries to sign off on the loan, even though they do not have any vested rights in the property.

4) IRS liens:  Usually, the creditors of the grantee beneficiary inheriting the property cannot file any lien against the property during the lifetime of the property owner grantor. However, one exception is the IRS.  If one of your beneficiaries has an IRS tax lien, there is a chance a lien could attach to the property even while you are still alive.

Florida Lady Bird Deeds can be a valuable estate planning tool, offering advantages such as probate avoidance, control retention, and Medicaid planning benefits. However, it's important to consider the potential limitations, including state-specific laws, tax implications, and the like.  An experienced attorney can help you navigate these complexities to make a solid plan.

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