People spend a lifetime accumulating their assets, and most often have very specific wishes about how they would like their estate to be distributed upon their death. There are legal designations that determine how the process of the distribution of the estate proceeds. A qualified attorney can help ensure that your final wishes are captured in legal documents, such as a beneficiary deed, and that your heirs or beneficiaries will receive the assets you leave them without having to go through probate.
DOES THE STATE OF FLORIDA HAVE BENEFICIARY DEEDS?
Yes. Florida uses TOD (Transfer-on-Death) and POD (Payable-on-Death) designations which allows the beneficiary (or beneficiaries) to automatically receive the specified asset upon the death of the current owner. TOD designations are often used to transfer the funds in an IRA or brokerage account to a beneficiary. POD designations are generally used for bank accounts and stocks. One of the benefits of TOD and POD designations is that the beneficiary (or beneficiaries) do not have any right to the funds until the death of the owner.
However, in the State of Florida, TOD and POD designations cannot be used to transfer real estate or property. Instead, Florida recognizes enhanced life estate deeds, also known as Lady Bird deeds to transfer property to one or more beneficiaries. This designation works similarly to TOD and POD designations, but is used strictly for real estate.
WHAT EXACTLY IS A LADY BIRD DEED?
Only five states currently allow Lady Bird Deeds, and Florida is one of them. The other states are Texas, Michigan, Vermont, and West Virginia.
By using a Lady Bird deed, a person transfers all properties and real estate to himself until death. This creates what is called a life estate in the owner. A Lady Bird or beneficiary deed further allows the owner to designate beneficiaries who will receive his property upon his death.
One of the key provisions of a Lady Bird deed is that it allows the original owner to retain all the rights of ownership while he is still alive, without having to get consent from the named beneficiaries. This is what makes the Lady Bird deed an enhanced life estate. In a traditional life estate, the owner shares control of the property with the beneficiaries for the rest of his life. By terms of an enhanced life estate, or Lady Bird deed, the owner does not share control of the property with the beneficiaries. The owner retains full and complete control of the property. The owner can change his mind at any time, leave his property to someone else, gift it to someone, mortgage the property, or sell the property – all without having to involve the beneficiaries at all.
ADVANTAGES TO USING A LADY BIRD DEED
There are several benefits to using a Lady Bird or beneficiary deed:
- The original owner retains control of the property throughout his lifetime. A Lady Bird deed is one of only two kinds of deeds in which the owner has control of the property throughout his lifetime.
- The property is automatically transferred to the beneficiaries upon the owner's death and is not considered part of the probate estate – thus, the property is not considered an asset that must be probated.
- Property covered by Lady Bird deeds do not impact a person's Medicaid long-term nursing care eligibility. A Lady Bird deed's transfer of assets is not subject to a Medicaid look-back penalty period.
- There is no gift tax payable upon the transfer of the property at the owner's death.
- There are certain Federal tax advantages and state property tax planning advantages.
- In Florida, by using a Lady Bird or beneficiary deed, your home retains the Homestead exemption which generally results in lower tax assessments. In addition, the home will remain out of the reach of creditors.
- Although a living trust will accomplish the same goals as a Lady Bird deed, the Lady Bird deed is easier and less expensive to file, and can be done without using an attorney.
DISADVANTAGES OF A LADY BIRD DEED
- If the beneficiaries of the property die before the owner of the property, it is unclear what will happen to the property upon the owner's death. The owner would be well advised to formally change the beneficiaries if they predecease him.
- Change of beneficiaries in the Lady Bird deed requires additional paperwork.
- If there are multiple beneficiaries and they do not get along, this can create a problem down the line. In order for the property to be sold or otherwise disposed of, the beneficiaries will all have to agree.
- If the original owner of the house was in a long-term facility and Medicaid-eligible, the estate will need to pay back to Medicaid after the owner passes away.
- If you plan to apply for a mortgage on the property, some title insurance companies may not issue title insurance if the property is subject to a Lady Bird deed.
Estate planning is extremely important to ensure that your assets are distributed the way you want them to be, minimize or eliminate the tax burden for your heirs or beneficiaries, and ensure that your assets are not eaten up by Medicaid in the event you need long-term health care in a facility.
Consultant with an Experienced Florida Estate Planning Attorney Today
Setting up a beneficiary deed can be complicated. Working with an experienced estate planning attorney is a worthwhile decision when determining what you need to set up for your future. For further guidance, consult with an experienced estate planning attorney today.