Jacksonville Real Estate Law and Estate Services Specialists

Advantages

One of the best-kept secrets used for estate planning purposes and the transfer of real property to beneficiaries in the event of someone’s death is an estate planning product commonly called a Lady Bird Deed. Under Florida law, real property transfers designated in a Lady Bird Deed have certain advantages over willed property. This type of deed is in most cases best suited for a single-status property owner without minor dependents or a living spouse.

First, when someone passes away, the beneficiaries designated in a ladybird deed avoid probate court upon the receivership of the property the death of the life tenant(s).  

Secondly, the Lady Bird Deed allows someone to preserve the Florida Homestead Exemption benefits. This is important because the beneficiary can assume the inherited property, maintain a homestead exemption taking advantage of the property tax reduction even though the ownership in the deed changes. If the property owner executing the Lady Bird Deed has a spouse or minor children, transfer of a homestead exemption is not an available option. Additionally, since the homesteaded property has not changed hands, the property owner can still be protected against a forced sale by creditors. There is however a disadvantage to the beneficiary if a lien is placed upon the property.

Another great advantage to a Lady Bird Deed is it allows you to preserve Medicaid eligibility if your domicile is homesteaded and the property deeded to the recipient is then not counted as a gift but as an asset. Additionally, because the ownership of the property passes at the time of your death, Florida Medicaid Estate Recovery is avoided, meaning that the state will not recover its costs against a property owned by a Medicaid recipient. 

Documentary Stamp Tax charges are not due because there is no immediate transfer of ownership of the property. Once the beneficiary receives the inherited property, documentary stamp taxes may become due.

From a tax perspective, Lady Bird Deeds are not viewed as a completed gift and as such the property owner has the right to change, modify, nullify or revert the property at any time. According to the Federal IRS Tax Code, Section 1014 there is a “step-up in basis” at the time of your death and the transfer of property. The benefit to your beneficiaries is that they can sell the property and possibly not incur any federal tax liability.

And finally, the cost for creating a Lady Bird Deed might be more than an ordinary deed but less than the traditional cost of creating a trust.

Disadvantages

Lady Bird Deeds should be implemented with caution if you are considering having multiple beneficiaries. Complications can arise if one of the beneficiaries dies during the property owner’s lifetime and the Lady Bird Deed is not updated to reflect the change.

There is a statutory and case law issue regarding the rights of creditors to proceed against the interests of the beneficiaries, while you are alive, who might be involved in a bankruptcy or have unpaid financial debt. Even though the beneficiary has not inherited the property yet, it might be considered an asset even before your death and a judgement creditor might be able to attack their interest in the homestead. 

Title Companies and Lending Institutions might require a beneficiary on the Lady Bird Deed to join in a mortgage or the conveyance of the property. Additionally, the beneficiary might not have the benefit of the existing title insurance policy at the time of possession. Title insurance policies usually do not cover a beneficiary receiving real property as a gift, which in essence is exactly what a Lady Bird Deed does.

If the property owner decides to change the Lady Bird Deed, a title insurance underwriter may require the beneficiary to quitclaim their interest.