An enhanced life estate deed, also known as a ladybird deed, is an effective way to transfer real property on the death of the owner without going through probate or using a revocable trust. This allows a property owner to retain lifetime ownership of their real property and specifically name the people they want to gift the property to upon their death (remaindermen).
There are some key differences between a traditional life estate deed and a ladybird deed. A traditional life estate is a limited form of ownership where the life estate owner cannot sell their property without consent from the remaindermen.
A ladybird deed is an enhanced life estate deed because the remaindermen do not have any rights to the property until the owner passes away. The original owner retains full control until their death.
For example, Mary would like to transfer her home to her daughter Dorothy upon her death.
If Mary chooses a traditional life estate deed, once the deed is recorded:
- Mary can be sued by Dorothy if she does not take care of the property;
- Mary needs Dorothy to consent to any sale or mortgage;
- Mary cannot revoke the gift to Dorothy without Dorothy deeding the property back to her;
- Mary may need to file a gift tax return of the present value of the remainder given to Dorothy is worth more than $15,000.00.
Conversely, if Mary chooses to execute an enhanced life estate or “lady bird” deed:
- Mary is not liable to Dorothy for any waste or damage to the property;
- Mary does not need Dorothy’s consent to a sale or mortgage;
- Mary may change her mind and revoke the gift to Dorothy at any time by executing a new deed; and
- Mary does not need to file a gift tax return.
Here is a chart that summarizes the differences between lady bird deeds and regular life estate deeds:
|Traditional Life Estate Deed||Enhanced Life Estate Deed|
|Owner Liable to Remaindermen for Waste or Damage to Property?||Yes||No|
|Does the owner need consent from remainderman to sell or mortgage property?||Yes||No|
|Can owner revoke the gift before death?||No||Yes|
|Does owner need to file a gift tax return or pay gift tax?||Possibly (depends on the present value of the gift)||No|
It is important to note that if a real estate owner becomes incapacitated, a ladybird deed does not offer the same benefits as a trust. With a trust, if the owner becomes incapacitated, the next trustee in line has the immediate power to control the property, whereas the remaindermen of a ladybird deed have no right to manage the property.
A ladybird deed may be a great addition to your estate plan. An experienced attorney at Lavender Greenberg can help you determine whether a ladybird deed is the right option for you.