When someone passes away, their estate needs to be managed and distributed according to their wishes. One of the tools used in estate planning is the Lady Bird Deed, which can offer several advantages for both property. 

Owners and their heirs. But what happens to a Lady Bird Deed after death? Let’s explore the details, its purpose, and how it works.

What Is a Lady Bird Deed? Its Purpose and Which States Allow It

What Is a Lady Bird Deed? Its Purpose and Which States Allow ItA Lady Bird Deed is a specific type of deed used in estate planning that allows property owners to transfer ownership of real estate to their beneficiaries while retaining control over the property during their lifetime. 

This deed is particularly useful for those who want to avoid the lengthy and expensive process of probate after their death, while also maintaining full control over their property until they pass away.

What is a Lady Bird Deed?

A Lady Bird Deed, also known as an enhanced life estate deed, is a special type of deed used in real estate transactions. It allows the property owner (the “grantor”) to transfer the title of their property to a beneficiary 

The “grantee” while retaining certain rights during their lifetime. These rights include the ability to live on the property, sell it, or change the beneficiary at any time.

States that Allow a Lady Bird Deed

Lady Bird Deeds are not available in all states. Currently, they are permitted in Florida, Michigan, Texas, and a few other states. 

Each state may have its own rules regarding the use and validity of Lady Bird Deeds, so it is essential to check local laws or consult an attorney to determine if it’s a valid option.

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The Purpose of a Lady Bird Deed

The primary purpose of a Lady Bird Deed is to provide a way for property owners to transfer property to a designated beneficiary while maintaining control over the property during their lifetime. 

This type of deed is particularly useful for those who wish to avoid probate and make a seamless transition of property ownership after death. It also helps in Medicaid planning, as the property may not be counted as an asset when determining Medicaid eligibility.

Lady Bird Deeds and Medicaid

Lady Bird Deeds can be a beneficial tool for Medicaid planning. Medicaid has strict rules about asset eligibility for long-term care assistance, and many people worry that their property could disqualify them from receiving benefits. 

However, with a Lady Bird Deed, the property is not considered part of the estate for Medicaid purposes, as the grantor retains the ability to alter or revoke the deed during their lifetime. This means that the property does not have to be sold to pay for care, and it is excluded from Medicaid asset calculations.

Disadvantages of a Lady Bird Deed

While there are many advantages to using a Lady Bird Deed, there are also some disadvantages to consider. One significant drawback is that it does not allow for the grantor to create a complete estate plan since it only applies to real property and not other assets.

Furthermore, it may be subject to estate taxes if the property value exceeds certain thresholds, or if the grantor’s estate is large enough. Also, not all states allow Lady Bird Deeds, so those in states where it is not permitted must consider alternative estate planning tools.

Lady Bird Deeds Compared with Other Estate Planning Documents

When considering a Lady Bird Deed, it’s important to compare it with other estate planning documents such as trusts, quitclaim deeds, and wills. 

Each of these tools has its own purpose and may be more appropriate depending on individual needs.

Lady Bird Deed vs. Trust

A Lady Bird Deed differs from a trust in that a trust allows for the transfer of all types of assets (including real property, bank accounts, and investments), while a Lady Bird Deed only applies to real estate.

Trusts provide more comprehensive estate planning, as they can avoid probate for multiple types of assets. On the other hand, Lady Bird Deeds are simpler and more cost-effective for transferring a specific property.

Lady Bird Deed vs. Quitclaim Deed

A quitclaim deed transfers ownership of property immediately and irrevocably. It does not allow the grantor to retain control over the property during their lifetime, unlike a Lady Bird Deed. A quitclaim deed can also leave the property vulnerable to creditors and 

Medicaid claims, while a Lady Bird Deed offers more protections. Additionally, Lady Bird Deeds have the benefit of avoiding probate, while quitclaim deeds do not offer this advantage.

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Lady Bird Deed vs. Will

A will is a legal document that outlines how a person’s property should be distributed after death. Unlike a Lady Bird Deed, a will does not take effect until the person dies and requires the property to go through probate. 

A Lady Bird Deed, however, allows for the immediate transfer of property upon the death of the grantor, bypassing probate altogether.

Frequently Asked Questions 

What happens to a Lady Bird Deed after death?

After the property owner passes away, the beneficiary named in the Lady Bird Deed automatically becomes the property owner, without the need for probate.

Can the grantor change the beneficiary of a Lady Bird Deed?

Yes, the grantor retains the ability to change the beneficiary or revoke the deed entirely during their lifetime.

Does a Lady Bird Deed avoid Medicaid estate recovery?

Yes, a Lady Bird Deed can help avoid Medicaid estate recovery by transferring ownership of the property outside the estate, as the grantor retains control during their life.

Can a Lady Bird Deed be contested?

While it is possible to contest a Lady Bird Deed, doing so typically requires a legal basis, such as proving that the grantor lacked the mental capacity to sign the deed.

What are the tax implications of a Lady Bird Deed?

In some cases, the property may be subject to estate taxes, especially if the value of the property is high. It’s recommended to consult with a tax professional for specific advice.

Conclusion

A Lady Bird Deed is a powerful tool in estate planning, especially for those who want to ensure the smooth transfer of real property after death. By avoiding probate and protecting the property from Medicaid estate recovery, it offers several benefits. 

However, like any legal tool, it comes with its limitations and may not be suitable for everyone. It’s essential to understand your state’s laws and consult with an estate planning attorney to determine if a Lady Bird Deed is right for you.