By: Robert W. Bible, Jr., Attorney At Law

Quite often, when discussing estate plan objectives with a client, the issue of probate arises, mainly centered on the client’s desire to avoid probate.  In the course of those discussions, the client might mention some “probate avoidance tactics” he or she may have heard of in the midst of some social interactions.  For quite a while, the popular topic involved use of revocable trusts.  Lately, however, more and more clients are raising the topic of “Lady Bird Deeds”.  Because the client heard that a Lady Bird Deed allows title to real estate to pass without the need for probate, they indicate they want to restructure ownership of their home or other real estate through use of a Lady Bird Deed.  This article is intended to provide readers with a brief introductory discussion of Lady Bird Deeds.

The actual legal designation in Florida for a Lady Bird Deed is “Enhanced Life Estate Deed”.  Though the label “Lady Bird Deed” has historically been attributed to Lady Bird Johnson, there is much debate as to whether the tie to Lady Bird Johnson is real or fictional.  Nevertheless, the name has stuck.  The best way to explain the intended nature and effect of an Enhanced Life Estate Deed, is to relate it to a “pay on death” bank account.   In setting up a pay on death bank account, the account owner names one or more “pay on death” beneficiaries.  During life, the owner of the account continues to have the sole power and ability to use for his or her own purposes all or any part of the money deposited into the account.  The owner of the account can close the account, can change or eliminate the pay on death beneficiary designations, or can otherwise alter or manage the account as he or she wishes during his or her lifetime.  It is only the dollar amount “remaining” in the account, if any, which passes to the designated beneficiaries on the death of the account owner, and the funds in the account pass to the named beneficiaries automatically, without the need for probate.

Similarly, under an Enhanced Life Estate Deed, the “Grantor” (the owner of the real property) makes a conveyance of the real property to him or herself in a way which creates a “life estate” in the Grantor, and names one or more “remainder Grantees” who receive title to the real property on the Grantor’s death.  Under a traditional life estate arrangement, the consent of the remainder Grantee(s) is required in order for the Grantor to sell, mortgage, or otherwise dispose of the real property, or to eliminate the remainder interest.  What makes an Enhanced Life Estate Deed so appealing, besides the ability to transfer the real property without probate, is the Grantor basically retains all the exclusive rights of full ownership.  In structuring an Enhanced Life Estate Deed, the Grantor reserves significantly more power and authority over the real property (i.e. “enhanced” life estate powers) than normally would exist in a traditional life estate transfer.  Although, as in traditional life estate arrangements, the Grantor designates one or more “Grantees” who ultimately receive title to the real property upon the death of the Grantor, in using an Enhanced Life Estate Deed, the Grantor retains the right to sell, convey, mortgage or otherwise dispose of the real property without the consent of the Grantees, and without any need to share the proceeds of any sale with the person or persons designated to receive the remainder interest, and also retains the right to eliminate or alter the remainder interests.  As with a pay on death bank account, only upon the death of the Grantor do the Grantees have any rights or interests in or to the real property.  Unless the Grantor has during his or her life either sold or conveyed the real estate, or revoked the remainder interest, this “remainder” interest passes to the named Grantees automatically on the death of the Grantor, without the need for probate.

Although avoiding probate is one of the primary benefits of using an Enhanced Life Estate Deed, there are several other benefits associated with this type of real estate conveyance.  Because the retention of the powers to use, convey, sell, and even revoke the remainder interest results in the Grantor not actually transferring ownership of the real property during his or her lifetime, there are generally no documentary stamp taxes due at the time of the transfer (however, documentary stamp taxes may be due on the transfer to the remainder Grantees on death of the Grantor), there is no completed gift of the property for federal gift tax purposes, there is no completed transfer of the real property for Medicaid eligibility determination, the real property continues to qualify for homestead exemption and the save our homes real property  tax cap, and the real property receives a stepped-up fair market value basis for determining capital gain taxes upon the death of the Grantor.  Nevertheless, in spite of all the potential benefits of using an Enhanced Life Estate Deed, it is not a “one size fits all” estate planning tool.  An Enhanced Life Estate Deed should be used sparingly, and only after careful discussion of the pros and cons with an attorney who is well versed not only in the benefits, but also in the potential adverse consequences of such a conveyance.

Unlike pay on death bank accounts, the legal attributes associated with an Enhanced Life Estate Deed have not been developed through legislation, but have only evolved through limited court proceedings in the State of Florida.  As such, many title insurance   and lending agencies approach conveyances under an Enhanced Life Estate Deed cautiously.  Despite the retained powers by a Grantor to revoke or eliminate remainder Grantees, and the retained power to sell or convey the real property without need of consent by the remainder Grantees, some title insurance companies may nevertheless, under some circumstances, require a quit-claim deed by the named Grantees in order for the Grantor to sell, convey, “re-convey” back to the Grantor, or mortgage the subject real property.  Careful consideration should also be given when there are a number of intended Grantees under an Enhanced Life Estate Deed.  In that situation, upon the death of the Grantor, any future sale or conveyance of the real property, or other use of it, requires mutual consent among the multiple Grantees (who may or may not get along or otherwise agree with each other).  Structuring the manner in which multiple Grantees receive title upon the death of the Grantor is also a crucial determination (for instance, whether “rights of survivorship” are appropriate to the overall plan).  In addition, if any of the named Grantees have financial problems, such as a judgment lien or IRS lien, this may affect not only the ability of the remainder Grantees to deal with the real property in the future, but could also impose problems for the Grantor during his or her life in efforts to sell, convey or mortgage the real property.  Finally, in situations where the real property is the homestead of the Grantor, and the Grantor is survived by a spouse and/or minor children, the laws protecting the homestead make use of an Enhanced Life Estate Deed problematic, and most likely, prohibitive.

This article in no way is intended to be an exhaustive discussion of the pros and cons, or the legal consequences of using Enhanced Life Estate Deeds.  It is intended to provide a basic understanding of the intended purpose and effect of an Enhanced Life Estate Deed, as well as its potential benefits and limitations.  Although an Enhanced Life Estate Deed may be a very effective estate planning tool in structuring an overall estate plan, it is not for everyone.  If you are interested in using a “Lady Bird Deed” to avoid probate or to accomplish some other estate plan objective, it is important that you seek guidance from an experienced real estate or estate planning lawyer.  If you have further questions relating to the use of “Lady Bird Deeds”, and whether incorporating a “Lady Bird Deed” would work with your particular estate plan, at Bob Bible Law, we have the knowledge and experience to guide you through these considerations.

For more information, contact Robert W. Bible, Jr., Attorney At Law at 727/538-7739 (office), 727/710-5166 (cell) or by email at: