I get into the basics of florida lady bird deeds and when to use a lady bird deed in the linked article. Very quickly, a lady bird deed (also known as an enhanced life estate deed) can be used as an effective estate planning tool to allow a homeowner to live in their home for the rest of their lives and, if no changes are made to the deed, pass ownership onto whoever is designated in the recorded lady bird deed after the life estate holder passes away. Because the remainderman have no interest while the life-estate holder is alive, lady bird deeds are useful in Florida long term care medicaid planning, as well as estate-planning, context.
Think of a Florida lady bird deed as the real estate equivalent of a pay-on-death designation on a bank account. No probate is needed for either asset to pass to intended heirs. Other advantages include: no doc stamps when recording the deed, lower costs (compared to trust planning and probate), keeping homestead exemption intact, and tax advantages.
Lady Bird Deed - Disadvantages and Warnings
This article is essentially a lady bird deed warning label - most of the time lady bird deeds work great, but there are the occasional drawbacks and side effects.
Risk to Your Estate Plan
Typically a parent becomes the life estate holder and they list their children as remainderman (the remainderman are the person(s) who will inherit the real estate after the life-estate holder passes away). What happens if there is only one child and that child passes away first?
If a life estate holder has two children and one of those children passes away, should the deceased-child’s half go to the surviving child or should it go elsewhere? Generally, if one of the remainderman has passed away first, probate will likely be required (unless the remainderman are to own the property as joint tenants with rights of survivorship, which would be atypical for an enhanced life estate deed) or a specific contingency is built into the deed (e.g. “remainder to my daughter Susan Jones, if she survives me, and if not, to my son, Sam Jones.”)
Also, if multiple people become co-owners as remainderman after the grantor of the enhanced life estate deed passes away, they have to agree on what to do with the property. If they disagree or are unfriendly, it can cause disagreements and even lawsuits.
Furthermore, what if the grantor of an enhanced life estate deed wishes to leave part of the real estate to a minor?
To honor the life-estate holder’s intent, with specificity as to what should happen in these situations, it would be better to deed the house into a revocable trust instead of utilizing a ladybird deed. A revocable living trust is almost infinitely flexible, it can account for any number of contingencies and is controlled by the trustee.
Not all Title Insurance Companies Treat Lady Bird Deeds Equally
While lady bird deeds all say that the life estate holder retains the right to sell, rent, or even change their mind (i.e. remove or replace remainderman), not all title insurance companies will honor this request and may require remainderman to sign off on any real estate transfer to avoid the potential for litigation.
The good news is that it seems the largest and most widely used title insurance companies seem to honor lady bird deeds. However, some will still be hesitant to write title insurance in certain situations.
For example, The Fund (one of the most popular title insurance companies with real estate attorneys) will require that judgments recorded against the life-tenant in the county where the property is located, will have to be cleared before they will insure title (if the lawsuit is filed prior to the creation of the lady bird deed). If the judgment involves a federal IRS tax lien against the remainderman, the lien must be cleared (and a release letter provided by the IRS) before they will insure title.
Lady Bird Deeds and Florida Homestead
It is a benefit that the life-estate holder will maintain his/her Florida homestead status when utilizing a lady bird deed.
But care must be given to make sure that they are not intentionally or unintentionally transferring their home to a 3rd party when a spouse or minor child remains living on the property in question. In such a situation (when the life tenant is survived by a spouse or minor child) the homestead cannot go elsewhere regardless of what is written in the enhanced life estate deed.