The Importance of Lady Bird Deeds for New Homeowners
What is a Lady Bird Deed?
A Lady Bird Deed (sometimes referred to as an “enhanced life estate deed”) is a unique life estate deed that allows you to keep control over your property until death. When the person holding a lady bird deed passes on, the property will be automatically transfer to the new owners without the need for probate. Avoiding probate can be incredibly important, especially when your finances aren’t in order! Probates can be incredibly costly and on average take around 6 months to 2 years to complete.
How a Lady Bird Deed Works?
Using a lady bird deed is one of only two ways to ensure that you avoid probate in the result of your death (without having to sacrifice property control while you’re still alive). While there are only a few states that genuinely recognize these deeds, they are one of the most popular estate planning options you’ll find to help you avoid probate.
Real estate ownership will be divided up according to your period requirements. Whenever you create a lady bird deed you’re legally bound to property until your death, meaning it’s now considered a “life estate” (with the original owner of the property becoming a “life tenant”).
This particular deed also allows you to name one (or more) people, organizations, or trusts to inherit your property in the event of your death. This is called your “remaindermen” or even “remainder beneficiaries”.
What If the Life Tenant Dies Without Changing Their Minds?
Should you pass and the lady bird deed is still active, your property will automatically pass onto the remainder beneficiaries that you’ve set up. The probate process is not going to be present, as all that needs to happen is a transfer of property to the new estate holder.
Retained control during your life and automatic transfer of property after your death are what make lady bird deeds such a popular option for land owners all over the United States (in the states that allow them, at least!). There are only five states in total that allow the use of lady bird deeds, which would be:
- Michigan
- Florida
- Texas
- Vermont
- West Virginia
Pros and Cons of Lady Bird Deeds
Pros
Probate Avoidance
Some of the more obvious pros that come along with lady bird deeds would be probate avoidance and retained control. The ability to avoid probate is very important for anybody who is looking to transfer their property after death, and lady bird deeds help avoid that by using an automated process. Probate court is often responsible for settling this matter, but using a lady bird deed removes them from the equation entirely!
There are times where remainder beneficiaries will want to record the death certificate of the previous life tenant after passing for land record purposes, but this doesn’t call for a court proceeding.
Retained Control
Retained control is easy when you use a lady bird deed because the original owner can always change their mind without involving their remainder beneficiaries. This means that outside parties won’t have an impact on your decision, and if the life tenant chooses to sell the property or give it to another person, they can do so with ease. Remainder beneficiaries have no control over what you do with the property before your death, meaning they can’t call a “veto vote” to try and prevent you from selling!
Tax Planning and Legal Fees
You’ll also save quite a bit in regards to legal fees, and tax planning (both property and federal) will be a much easier process. If you plan on applying for Medicaid this can help as well! Medicaid won’t look at your lady bird deed to determine whether you’ve earned a “penalty period” (which is where the applicant won’t apply for full Medicaid benefits during a certain period).
Cons
Lack of Flexibility
The only true con that people can find with using a lady bird deed is the fact that there are only five states in total that can legally apply them. If you happen to live outside of these five states and are interested in obtaining a lady bird deed for your property, you’re out of luck.
Mortgage Payment
While the property covered by a lady bird transfers to the beneficiaries automatically, the beneficiaries will still need to be able to pay for the mortgage. This can cause problems in keeping the property. However, if life insurance or other liquid assets are available, the beneficiaries may use the proceeds from those assets to pay off creditors and keep the property.
Is a Lady Bird Deed the Right Fit for You?
Does using a lady bird deed sound like the perfect fit for your property? Whether you’re getting older or just want to be prepared for the inevitable, using a lady bird deed is the perfect way to keep your investments secure. If you live in any of the 5 supporting states (Florida, Texas, Michigan, Vermont, or West Virginia) be sure to look into obtaining a lady bird deed, as it could help you avoid an abundance of fees in the foreseeable future.
