When a potential client comes to my office, they generally have Wills and Trusts in mind. Rarely do they mention other estate planning techniques, which are often less expensive and, under the right circumstances, more effective means of passing estates to the intended beneficiaries. One of those techniques is a Lady Bird deed, also known as an enhanced life estate deed or transfer on death deed.
What is a Lady Bird deed?
A Lady Bird deed is an effective way to transfer real property upon the death of the owner without going through probate or using a Revocable Trust. This deed allows passage of title to the intended beneficiaries upon the owner’s death by simply filing a death certificate in the official records. When a Lady Bird deed is executed, the property owner, also called the life estate holder or life tenant, retains lifetime ownership of the real property and designates the people who will receive the property upon their death. These beneficiaries are called the “remaindermen.”
Does the remainderman have rights to the property?
A Lady Bird deed is an enhanced life estate deed because the remaindermen do not have any rights to the property until the owner passes away. This is in contrast to a traditional life estate deed, where the life estate owner cannot sell their property without the consent of the remaindermen.
Why you shouldn’t use a traditional life estate deed
With a traditional life estate deed, the life tenant is liable for any waste or damage to the property. They also need the consent of the remaindermen to sell or mortgage the property and cannot revoke the deed without this consent. Additionally, if the value of the remainder interest exceeds $18,000, a gift tax return must be filed.
On the other hand, a Lady Bird deed offers greater flexibility and control over property compared to a traditional life estate deed, making it a more advantageous option for property owners.
Summary
While a Lady Bird deed offers significant benefits, it is not without drawbacks. One major limitation is the lack of protection in case of incapacity. Unlike a trust, where the next trustee can immediately manage the property if the owner becomes incapacitated, a Lady Bird deed does not grant any management rights to the remaindermen in such situations. This gap in protection underscores the importance of consulting an experienced attorney. An attorney can help you evaluate whether a Lady Bird deed is the right choice for your estate planning needs and ensure all aspects of your estate are properly protected. If you would like to know more about what is the right fit for you, schedule a 15-minute free call with us here.
