An enhanced life estate, also known as a “lady bird deed,” is a type of real property interest. It grants ownership rights to one person ( the “life tenant”) during their lifetime and confers a future interest in the property to another person (the “remainderman”). A traditional life estate cannot be revoked or otherwise changed without the consent of both the life tenant and the remainderman.
However, a lady bird deed allows a homeowner to grant a life estate to themselves while maintaining the right to occupy, use, mortgage, or sell the property or change the remainder beneficiaries at any time without the remainderman’s approval. This allows the homeowner to take advantage of the benefits of a life estate while still retaining full control over the property.
Is a Lady Bird Deed Better Than a Trust?
Whether a lady bird deed or a trust is “better” depends on your estate planning needs. While both trusts and lady bird deeds allow you to avoid probate, trusts are generally better for handling complicated estates or distributing complex properties. In contrast, lady bird deeds work better to distribute simple property, such as a residential home.
Lady bird deeds are much simpler to create than trusts, making them less expensive. Transferring your property through a lady bird deed also allows you to receive Medicaid without being penalized for the transfer or your beneficiaries having to worry about Medicaid recovery after your death.
On the other hand, trusts offer much more flexibility and allow you to leave specific instructions and limitations on when and how the property should be received. Trusts also offer an added benefit of privacy, which lady bird deeds do not.
What Are the Disadvantages of a Lady Bird Deed?
While lady bird deeds are a beneficial estate planning tool, there are some disadvantages to keep in mind if you are considering one.
Perhaps the most substantial disadvantage of lady bird deeds is that they are limited to disposing of real property. This means that if you have any financial assets to pass on or if you need to name a guardian for minor children, you will still need to execute an additional instrument such as a will or trust or declaration of guardian.
Additionally, lady bird deeds can also impact your ability to obtain title insurance if you want to sell or mortgage the property. Some title insurance companies can be reluctant to insure title that is subject to a lady bird deed, particularly when there are multiple remaindermen.
Finally, lady bird deeds aren’t available in most states. Texas is one of the few states that allow homeowners to take advantage of the benefits of a lady bird deed, which limits its effectiveness as an estate planning tool in other states.
What To Do with a Lady Bird Deed After Death?
After the life tenant passes away, ownership of the property will automatically transfer to the remainderman. When you inherit real estate through a lady bird deed, you should check to see if the deed has been recorded. If it has not, you should record it to ensure you have clean title to the property.
In order for a lady bird deed to be effective, it must be executed by the grantor and recorded in the county where the property is located. However, unlike transfer on death deeds that must be recorded during the owner’s lifetime, lady bird deeds only need to be delivered to the grantee to be effective. This means that a remainderman can record a lady bird deed after the grantor’s death, and, as long as everything was executed properly, they will have clean title.
Can I Contest a Lady Bird Deed?
Yes, you can contest a lady bird deed and ask for it to be set aside in some instances. For instance, if the deed was executed fraudulently or under duress, you can ask a court to invalidate it. You can also contest a lady bird deed if the grantor lacked capacity at the time it was executed, or if it conflicts with spousal homestead rights or another legal right or lacks the required formalities.
If you are interested in contesting a lady bird deed, you should consult with a probate litigation attorney as soon as possible. There are limited circumstances under which a deed can be set aside, and an experienced lawyer can help you determine if you have a claim that is worth pursuing.
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About RMO, LLP
RMO LLP serves clients in Los Angeles, Santa Monica, Ventura, Santa Barbara, San Francisco, Orange County, San Diego, Kansas City, Miami, and communities throughout California, Florida, Missouri, and Kansas. Our founder, Scott E. Rahn, has been named “Top 100 – Trust and Estate Litigation” by SuperLawyers, Trusts and Estates Litigator of the Year, and Best Lawyers in America for Litigation – Trusts and Estates. For a free consultation, call (424) 320-9444 or visit: https://rmolawyers.com.