What Is A Lady Bird Deed?

By Laurie E. Ohall, Florida Board-certified Elder Law Attorney

Lately, I have had many a phone call from potential clients asking about a ‘ladybird’ deed or saying that they need one for their house. Although it is one of the simplest ways to keep a home out of probate and away from Medicaid estate recovery, it does come with some pitfalls.

As an elder law attorney, I reach for this tool often. Here is what it does, what it does not do and who it tends to help most.

The legal name is an ‘enhanced life estate’ deed. The deed allows you to keep a life estate for your house and names who receives the home when you pass. The word ‘enhanced’ is what makes it different from a traditional life estate. You keep the right to sell the home, mortgage it, rent it or even change your mind about who inherits it, without asking anyone’s permission. The people you named have no ownership interest until the day you pass. When you pass away, the beneficiaries record a death certificate. No probate, no court, no waiting.

For long-term care Medicaid purposes, this is not considered a gift. If you gift assets to your children, there is, typically, a five-year lookback period and gifts incur a penalty. Since this is not a gift, that means no penalty period.

The ladybird deed does not affect your homestead exemption, and the Save Our Homes cap stays in place. Your creditor protection stays in place. When the home passes, your beneficiaries typically receive a stepped-up basis, which can save them meaningful capital gains tax if they later sell.

Although a ladybird deed is a powerful tool, it comes with some drawbacks. One of the drawbacks is that Florida’s homestead rules limit how you can leave a home if you have a spouse (who is not on the deed) or minor child, and a deed that ignores those rules can be challenged. The deed also does not name backup beneficiaries well, so if a named child passes before you, the result may not be what you intended. And a deed handles one asset. It does not replace a will, a trust or your powers of attorney. It works best as one piece of a complete plan.

Used correctly, this small document can spare your family months of court involvement and protect the home you worked for from a state claim after you are gone.