What's a Ladybird Deed? & Why You Might Want One
The Value of Your Primary Residence
Your primary residence, be it a house, boathouse, trailer, apartment, or other dwelling, is a defining feature of your life. It’s your home. It’s what you spent all those years saving for. It’s the place where your kids will form their core memories and remember as their childhood home. It’s where you’ll spend a lot of your time outside of work. It’s also likely the most valuable asset you own. According to the Pew Research Center, in 2021, the median net worth of U.S. households (all individual, their spouse, and any dependents) overall stood at $166,900, counting all assets. But their median net worth without home equity included was considerably lower at only $57,900. That’s a difference of $109,000 or 65%! Similarly, the same study found among U.S. homeowners, home equity (the value of your house minus any loan, mortgage, or other encumbrance) accounted for a median of 45% of their net worth. Accordingly, your primary residence is not just an important asset for sentimental reasons, there’s financial reasons as well. So, you want to make sure it's accounted for in your estate plan.
Ladybird Deeds: Introductory Concepts
Any well-done estate plan will include a method of transfer to get your home to your beneficiaries, and there are a variety of ways to accomplish this goal: revocable living trusts, LLC operating agreements, joint tenancy with right of survivorship, among others. This article will focus on the “Enhanced Life Estate Deed” also called a “Ladybird Deed.”
What's a Life Estate?
A Life Estate is a legal arrangement between the Life Tenant(s) and the Remainderman(men) over property. The Life Tenant has the right to use the property for his or her lifetime. At the end of the Life Tenant’s lifetime, the Remainderman becomes the owner of the property. The Life Tenant’s right to use the property while they’re alive is called a Present Possessory Interest. The Remainderman’s ownership interest in the property during the Life Tenant’s life is called a Remainder Interest or Future Interest. The term “Interest” means a right to receive or use property.
What's Vesting?
An important concept in Life Estates and Interests is “vesting.” When an Interest “vests” it becomes legally enforceable. This means you can sue someone that does something that goes against or does not account for your Interest. An Interest that has not yet vested is called an “Unvested Interest.” An Unvested Interest is not legally enforceable. This means you cannot sue someone if they act against or do not account for your Interest.
In a Life Estate, the concept of vesting is important to the Remainder Interest. If the Remainder Interest has vested, the Remainderman have the right to control some aspects of how the Life Tenants use the property with the Life Estate. If the Remainder Interest is unvested, the Life Tenants will have full use of the property, unrestricted by the Remainderman’s future right to possess the property.
Why is it Called a Ladybird Deed?
A Ladybird Deed: It's Like a Life Estate, But Better
Ladybird Deed is also called an Enhanced Life Estate Deed. It is a Life Estate with a little something more. So going back to basics, when someone files a Ladybird Deed, they create a Life Estate. It’s usually between the Homeowners, who are creating an estate plan and transferring their primary residence, and a Beneficiary, who will receive the home. The Homeowners are Life Tenants, and the Beneficiary is the Remainderman.
In a typical Life Estate, the Remainderman’s Interest vests when the Deed is recorded. Should the Life Tenants want to sell the house to downsize or move, take out a mortgage, or make changes to the property, the Remainderman’s Interest must be considered and if not, the Remainderman could sue to stop the Life Tenants.
What about the Remainderman’s Interest under a Ladybird Deed? Well, that’s “Enhanced” part of the Enhanced Life Estate Deed, the Remainderman’s interest is unvested until the Life Tenant dies. If you are the Life Tenants under a Lady Bird Deed, you’re free to live your lives as you see fit. You’ll also have the peace of mind that comes with knowing you’ve prepared to pass one of your most meaningful assets to your chosen beneficiary.
Pros & Cons of Ladybird Deeds
Pro: Avoids Probate
Probate is the lengthy, expensive, difficult, and exposing court process to distribute your assets when you die that's awaiting your loved ones, even if you have a Will. To avoid probate, your assets must not be titled in your own name or should provide instructions on how to distribute it when you pass away. A Ladybird Deed does this by naming a Remainderman.
Pro: Retained Control
As mentioned, because the Remainderman’s Interest does not vest until the Life Tenant dies, the Remainderman has no legal right to control how the Life Tenants use, manage, or maintain the property.
Pro: Favorable Tax Treatment
A properly executed Ladybird Deed will not result in negative gift tax, documentary stamp tax, or capital gains tax results. Meaning, you, the creator of the Ladybird Deed should not have to pay gift tax or file a gift tax return (because it is an complete gift), nor should you have to pay any documentary stamp taxes (because no interest is being transferred when filing), nor should the filing of a Ladybird deed prevent the Remainderman from receiving a step up in basis when inheriting the property (because no interest is transferred during your life.)
Con: Changing Beneficiaries
To be effective, a Ladybird Deed must be recorded in the Clerk of Court’s office. If you decide you want to change who will receive the property when your Life Estate ends, you’ll have to file a new Ladybird Deed reflecting that change every time.
Con: No Privacy
Ladybird Deeds, like other Deeds, are part of the public record. This means anyone, regardless of whether their intentions are good or bad (i.e. creditors, scammers, or fraudsters), can find your Ladybird Deed and see who’s going to inherit your property when you pass.
Con: Conflicts with Homestead
If you, like many people, are looking to use a Ladybird Deed to transfer your homestead, you’re probably going to run into some road bumps. Florida’s homestead provision forbids the transfer of homestead if you have a spouse or minor children; so, if you meet one of these criteria, you may need to consider another way to transfer the property.
Secure Your Legacy & Your Freedom with TealAcre
If you’re considering a Ladybird Deed, reach out to TealAcre to get the guidance you need. Don’t leave it to chance, or an online D.I.Y option, or the cheapest lawyer you can find! You read this far because you’re curious about estate planning. And, you’re curious about estate planning because you have questions about what will happen to your family, your assets, or business should anything happen to you. Instead of going at it alone, let TealAcre help you get the clarity and peace of mind you’re looking for. To contact us you can:
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