The “enhanced life estate deed,” often referred to as a Lady Bird deed, and is permitted only in several states. The unique qualities of a Lady Bird deed can be better understood following a traditional life estate.
When using a traditional life estate deed, the owner of the property (the grantor) reserves the right to live on the property until their passing, and then the property goes to the beneficiary (the grantee) designated in the deed. A significant drawback to a traditional life estate is that the grantor gives up control to sell or mortgage the property.
A Lady Bird deed additionally allows the grantor to live on the property until their death and then transfers it to the grantee. What makes a Lady Bird deed unique is that the grantor retains the right to sell or mortgage the property. The grantor’s interest is called a life estate, and the grantee’s interest is called a contingent remainder.
A Lady Bird deed includes a provision that the life estate is “coupled with an unrestricted power to convey during the Grantor’s lifetime.” However, it is essential to be sure the deed complies with state law.
Lady Bird Deed Statutes
Lady Bird deeds are currently available in Florida, Michigan, Texas, Vermont, and West Virginia.
Approximately half of the U.S. states have what is referred to as a transfer on death (TOD) deed, which is similar to a Lady Bird deed.
The Purpose of a Lady Bird Deed
The use of a Lady Bird deed and a traditional life estate deed is to avoid the property passing through probate upon the death of the grantor. Additional advantages of a Lady Bird deed include:
- The ability to sell or mortgage the property, or modify the deed
- Retaining the state homestead rights and property tax limitations
- Avoiding federal gift tax, since Lady Bird deed is revocable
- Protecting the property from claims against the grantee
Challenges with using a Lady Bird Deed
Some title insurance companies may be reluctant to provide title insurance on the property subject to a Lady Bird deed. It is also a challenge when the owner wants to leave the property to more than one grantee. Since sometimes the property taxes may increase substantially for the grantee, a trust might be a better option.
Lady Bird Deeds Compared with Other Planning Documents
- Lady Bird deed vs. quitclaim deed. Both quitclaim and warranty deeds would legally convey ownership of the property to the grantee. Neither of these allows the grantor to continue to live on the property, nor offers any of the advantages of a Lady Bird deed.
- Lady Bird deed vs. revocable trust. A revocable trust can accomplish the same things as a Lady Bird deed. If the grantor’s primary home is a large part of their net worth, the Lady Bird deed cost will be less to establish than the cost of having a revocable trust created. Otherwise, if the grantor owns a significant amount of property of any type in addition to your primary home, a revocable trust is a better choice.
- Lady Bird deed vs. will. If a Lady Bird deed disagrees with a will, the deed controls unless the grantor invokes the right to cancel the deed.