A ladybird deed, or enhanced life estate deed, is a very useful estate planning tool. This type of deed conveys a remainder interest in real property to one or more persons while retaining all the owner’s current rights during his or her lifetime – including the right to sell the property and keep the proceeds. When the owner dies, ownership of the property immediately passes outside of the probate process to the grantees named in the deed.
In addition to avoiding probate, a ladybird deed provides several other advantages. First, although a ladybird deed costs slightly more to prepare than standard warranty deeds, they are much less expensive than creating a trust that would do essentially the same thing. Ladybird deeds defer the payment of documentary stamp taxes until after the death of the life estate holder. Also, the transfer of a remainder interest using a ladybird deed does not affect the owner’s eligibility for Medicaid benefits, and it does not affect the owner’s present homestead status. Finally, the recipient of the life estate will receive a stepped-up basis for the calculation of capital gains tax when he or she eventually sells the property.
Ladybird deeds, however, are not appropriate for every situation. This type of deed should not be used if one is, or plans to become, married or who has a minor child. There are other disadvantages as well, including the possibility that a creditor’s lien could attach to the remainder interest, confusion by banks and title companies regarding the nature of the remainder interest, and the ladybird deed’s inability to deal with deceased grantees or other unanticipated circumstances. Nevertheless, the ladybird deed can be an effective way to pass real property upon your death and should be considered when creating your estate plan. For more information about ladybird deeds, contact McDannold Law at andrew@mcdannoldlaw.com or call 813-397-6330.