What is a Lady Bird Deed?

A “Lady Bird Deed” is another name for an enhanced life estate deed, which allows a property owner to transfer property at death without the necessity of probate. It is nicknamed “Lady Bird” because many people think that President Lyndon B. Johnson conveyed some land to his wife using this type of deed, although there is no evidence that actually happened.

How Does It Work?

An enhanced life estate deed allows a property owner to transfer a remainder interest in a home to the ultimate beneficiaries, but reserve a life estate (a right to occupy and use the property during his or her lifetime) and the right to sell or mortgage the property, or change the remainder beneficiaries at any time. If the owner dies without revoking the transfer, the property passes outright to the remainder beneficiaries without the need for probate.

How is an Enhanced Life Estate Deed Different Than a Traditional Life Estate Deed?

With both the enhanced life estate deed and the traditional life estate deed, a property owner transfers a remainder interest in the property to the ultimate beneficiaries and retains a life estate. However, a property owner using a traditional life estate deed does not reserve the right to sell or give away the land without the consent of the remainder beneficiaries. The enhanced life estate deed allows the property owner to reserve those rights.

Benefits of Enhanced Life Estate Deeds

Enhanced life estate deeds offer many advantages over traditional life estate deeds:

  1. They provide homeowner the flexibility to change the remainder beneficiaries at any time.
  2. They allow the homeowner to sell or mortgage the property without the consent of the remainder beneficiaries.
  3. They protect the property from the creditors of the remainder beneficiaries during the homeowner’s lifetime.
  4. Because the owner of the property retains the right to take back the property during his or her lifetime, the transfer will not count as a gift for federal gift tax purposes. A transfer of a remainder interest with a traditional life estate deed may trigger gift taxes if the value remainder interest in the property is greater than the annual gift tax exclusion.
  5. They preserve the homeowners ability to immediately qualify for Medicaid benefits. Transfers of assets within a “look-back” period may disqualify applicants from immediately qualifying for benefits. However, executing an enhanced life estate deed is not considered a transfer for Medicaid purposes because the homeowner retains the right to sell the property or revoke the deed.

Beneficiaries Receive a Stepped-Up Basis

Because property will remain a part of the grantor’s estate, the cost basis of a property transferred using an enhanced life estate deed would be “stepped-up” to the value of the house on the date of death. This may significantly reduce the amount of capital gains taxes owed when the property is sold.

Potential Problems With Using Enhanced Life Estate Deeds to Transfer Property

I worked with a client recently whose mother had executed an enhanced life estate deed transferring a remainder interest in her property to her children.

The property was mortgaged, so after her death, the children contacted the mortgage company, a large bank, to assume the mortgage. Employees of the assumption department, who were based overseas, were not familiar with enhanced life estate deeds and suggested that the conveyance may have triggered the mortgage’s due-on-sale clause. I was able to point them to the federal law that prohibits mortgage companies from enforcing due-on-sale clauses when property is transferred to the borrowers children or spouse. Eventually, someone from their legal department took over and the matter was resolved in my client’s favor.

I’m sharing this experience because if there is an outstanding mortgage on the property, and the property is not being deeded to a spouse or child, there is a chance that the mortgage company could claim that a conveyance with an enhanced life estate deed triggered a due-on-sale clause. Due-on-sale clauses allow the lender to declare the entire balance is due immediately if ownership of the property is changed. Violation of the contract may be grounds for foreclosure.

Would it matter if the property had been transferred to someone other than a spouse or children. I don’t think so. Federal law prohibits the lender from exercising the due-on-sale clause when someone inherits a piece of property. The mortgage company may argue that the deed caused a change in ownership when it was signed. However, since an enhanced life estate deed is completely revocable and modifiable, it can be argued that the beneficiary’s interest would not vest until after the homeowner dies. Nevertheless, to avoid any problems, you should check with your lender, and confirm in writing that they will not invoke the due-on-sale clause if you plan to to transfer the property to anyone other than a spouse or child.

Additionally, some title companies who may not be accustomed to seeing enhanced life estate deeds may be reluctant to insure a title transferred in this way without the remainder beneficiary joining in the transaction during the life of the life tenant or when the remainder beneficiaries wish to sell the property after the death of the life tenant. However, not all title companies will refuse, especially as more people use enhanced life estate deeds.

Comments

  1. What happens if the sole beneficiary in the ladybird deed (my client’s son) dies before the grantor (his mother) dies? Will my client then file a revocation and/or make a new ladybird deed to her remaining son? Or can she go ahead and provide in the ladybird deed that, if that son dies, her other son owns the property? There is no mortgage company.

    • It is important that the deed address what should happen to the property if the Grantee dies before the Grantor. If the deed creates a contingent remainder interest, the Grantee dies before the Grantor, and the Grantor does not take any action, then the disposition of the property will be governed by the Grantor’s Will. It is possible to draft the deed to specify that if the Grantee is not then living, full record title shall vest in a contingent beneficiary.

  2. Deborah Pack says:

    Where can I get this deed?

  3. My mother executed an Enhanced Life Estate deed transferring her property to me. Due to her illness she hasn’t paid the property taxes for the last few years. Tax office postponed the taxes but the penalty and interest is adding up! What will happened to the taxes after her death? We both are living in the property and there is no mortgage.

    • Property conveyed by an enhanced life estate deed is typically passed subject to any outstanding liens against the property, as well as all valid restrictions, easements, and other encumbrances as they appear of record.

    • The conveyance is subject to any outstanding liens against the property, whether existing or to be created by Grantor in the future, and all valid restrictions, easements, and other encumbrances as they appear of record.

  4. Can you name the trustees of a joint trust as the beneficiary of an enhanced life estate deed or does it have to be individuals?

  5. Can a Lady Bird Deed be done after the person is on Medicaid?

  6. If the house with a lady bird deed is sold and the grantor is still living are the proceeds subject to Medicaid taking them away? Thank you so much.

    • Please don’t take any action without consulting an elder law attorney about the ramifications of selling a home subject to the Lady Bird deed. Under current rules, Medicaid can only recover assets included in the deceased individual’s probate estate. The Lady Bird deed is a means of transferring the home to it’s intended beneficiary outside of probate.

  7. Can you have a lady bird deed on a property that contains a mortgage? Do you need permission from the mortgage company to sign a ladybird deed? I recently got some legal advice and was told that putting a ladybird deed on a property with a mortgage could trigger the “due on sale” clause.

    • Federal law prohibits mortgage companies from enforcing due-on-sale clauses when property is transferred to the borrowers children or spouse. It also prohibits the lender from exercising the due-on-sale clause when someone inherits a piece of property. The mortgage company may argue that the deed caused a change in ownership when it was signed. However, since a Lady Bird Deed is completely revocable and modifiable, it can be argued that the beneficiary’s interest would not vest until after the homeowner dies.

      Nevertheless, to avoid any problems, you should check with your lender, and confirm in writing that they will not invoke the due-on-sale clause if you plan to to transfer the property to anyone other than a spouse or child.

  8. What effect will a Lady Bird Deed have if you already have a Last Will and Testament?

  9. Hi, first of all this is a great place. I have learned so much. If the Lady Bird Deed is used, can the beneficiaries to a certain property be two people, even though the Will names eight beneficiaries? Is the Lady Bird Deed a unique instrument to remove that property from the rest of the estate? Thanks so much.

  10. Hi Rania….This site is so incredibly helpful! My first question is, do the beneficiaries have to reside at the property along with the Grantor when using a Lady Bird Deed or a Traditional Life Estate Deed? Secondly, can the property be granted to a beneficiary that is 17 years old via a trust?

    • I’m glad you find this site helpful. Remainder beneficiaries do not need to reside on the property with the property owner. It is possible to name a trust as a beneficiary of the property.

  11. Marvin Beechly says:

    Would property in a living trust accomplish avoidance of Medicaid Estate Recovery?

    • Putting a home in a trust avoids estate recovery by avoiding probate; however, it also causes he home to be a countable asset, which may prevent an applicant from qualifying for Medicaid.

  12. Gilbert says:

    Does a Grantor have to live for a certain period of years before a ladybird deed becomes valid?

  13. Joanne fordyce says:

    We have one son and our home is paid for, no mortgage. We would like our son to have our home and not have to do probate. Is lady bird a better solution than a will? We are both in our 70s, retired military. I really don’t understand the Medicaid situation with an estate.

  14. Lorena Rodriguez says:

    Great information! Thank You!!

  15. Mary Ann Gonzales says:

    I have a general question about lady bird life estates…my husband and I own a second home ( not our primary residence) and we would like to deed that property to our six children, reserving life estates for both of us….can we use one deed form for both of us or should we each do our own deed form for each of our 1/2 interest? This is a great website. Thanks so much

    • You’re welcome! I’m glad you find my website helpful.

      An attorney can prepare one transfer on death deed that conveys a deceased spouse’s interest in the property to a surviving spouse with the remainder passing to children at the death of the surviving spouse.

  16. If the home owner becomes unable to make his own decisions and has a ladybird deed with two beneficiaries and one beneficiary does not want to accept the property, can that beneficiary just decline the transfer? Thank you for all the info you have shared!

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