Unlocking the Benefits of Lady Bird Deeds

Unlocking the Benefits of Lady Bird Deeds: A Comprehensive Guide

Lady Bird Deeds, also known as enhanced life estate deeds, have become a popular estate planning tool for individuals seeking to avoid probate court upon their passing. This blog post examines the advantages, disadvantages, and how Lady Bird Deeds differ from traditional deeds.

What is the Origin of the Lady Bird Deed?

The common myth is that the Lady Bird Deed originated when Lady Bird Johnson transferred property to Lyndon Johnson, the former president of the United States. In truth, the first Lady Bird deed was actually drafted by Florida attorney Jerome Ira Solkoff nearly ten years after the death of President Johnson. Later, Mr. Solkoff’s prepared seminar materials explaining the deed and its unique features to other attorneys. In his seminar materials, Solkoff used fictitious and entertaining names in his examples to keep seminar attendees interested. In the example teaching the concepts of the Lady Bird Deed, he used the names “Lady Bird” and “Lyndon.” Thus, began the myth.

Understanding Lady Bird Deeds

A Lady Bird Deed is a kind of deed that is analogous to adding a “beneficiary” on to a bank or investment account. Technically, the deed conveys the property from the grantor (e.g. a mother) to the grantor for her life (e.g. a mother conveys the property from herself to herself for lifetime) and after grantor’s life to the grantee (e.g. to the mother’s children after her death). What makes the Lady Bird Deed special is that it allows the grantor (e.g. the mother) to retain control over the property during his or her lifetime. Then, if the grantor has not conveyed the property before his or her death (e.g. the mother has not sold the property before her death), the property is automatically transferred to the grantee (e.g. her children) without the need for probate proceedings. Thus, the Lady Bird Deed allows a property owner to retain control and use of the real estate during his or her lifetime while ensuring a seamless transfer to designated beneficiaries upon their death.

The unique feature of a Lady Bird Deed is the ability to retain the right to sell or mortgage the property without the need for the beneficiaries' consent. Additionally, a Lady Bird Deed is entirely revocable. This means that a Lady Bird Deed can be reversed or changed.

Advantages of Lady Bird Deeds

1. Avoiding Probate

One of the primary benefits of Lady Bird Deeds is the avoidance of probate. Unlike traditional wills, Lady Bird Deeds enable the property to pass directly to the named beneficiaries without the need for court involvement. This can significantly expedite the transfer process and reduce associated costs.

2. Flexibility and Control

Lady Bird Deeds provide property owners with the flexibility to retain control over their real estate during their lifetime. The ability to sell or mortgage the property without beneficiary approval offers a level of control not typically found in other estate planning instruments.

3. Added Safety for the Client

Clients unfamiliar with Lady Bird Deeds often ask the attorney to “put their kids on the deed” to avoid probate court at their passing. The traditional way this was done was to have the client convey the property from “client” to “client and child, with full rights of survivorship”. This traditional method, however, creates a number of potential problems. For example -- what if the child becomes involved in an auto accident and gets sued; what if the child gets divorced; or what if the child files for bankruptcy – in each of those situations, the client’s property would be titled in both his or her name and their child’s name. While a good attorney may be able to solve the client’s problems in each of these situations, the client’s position, unfortunately became much more complicated due to the traditional deed. Even worse, with a traditional deed, if the parent wanted to sell the property, his or her child would have to agree with the sale of the property and participate in any the sale. Each of these problems can be avoided with a Lady Bird Deed.

4. Medicaid Planning

Lady Bird Deeds can be a valuable tool in Medicaid planning. By retaining a life estate in the property, individuals may maintain eligibility for Medicaid benefits while still transferring the property to their chosen beneficiaries upon their passing.

How Lady Bird Deeds Differ

Lady Bird Deeds are distinct from traditional life estate deeds in that they allow the grantor to retain additional rights, such as the ability to sell or mortgage the property. This added flexibility makes Lady Bird Deeds an attractive option for those seeking greater control over their assets.

Disadvantages of Lady Bird Deeds

While a Lady Bird Deed can avoid probate, it is not right for everyone. For example, a Lady Bird Deed may not be right for a client with a minor child because after the death of the client, the property would then be titled in the minor child’s name – creating a number of problems -- and almost certainly requiring probate proceeding involving the minor child. Likewise, a Lady Bird Deed may not be appropriate for a client with a predeceased child and minor grandchildren, for the very same reasons.

A Lady Bird Deed can be problematic where the client has many children or where the children do not get along. By transferring the property to all of the children, it may cause conflict when the children do not agree on the sale of the property or its terms after the passing of the parent.

A Lady Bird Deed is not as sophisticated a tool as, for example, a revocable living trust. With a trust, a client may be able to protect the property if his or her child has a drug, alcohol, or gambling problem by having the property held by a third-party trustee. With a Lady Bird Deed, however, the child would have the ability to sell the property immediately after the parent’s passing and squander all of the proceeds.

Conclusion

Lady Bird Deeds offer a practical and often inexpensive tool for estate planning. If you are looking to avoid probate, maintain control over your property, or engage in Medicaid planning, Lady Bird Deeds may provide a solution. However, it's crucial to consult with legal professionals to ensure that Lady Bird Deeds align with your specific circumstances and goals.

If you're considering Lady Bird Deeds as part of your estate planning strategy, it's advisable to seek guidance from an experienced attorney who can provide personalized advice tailored to your situation.