Disadvantages of a Lady Bird Deed in Florida

A Florida lady bird deed, also called an enhanced life estate deed, can be a useful estate planning tool. In fact, the lady bird deed is my favorite way to transfer a homestead. It avoids probate without giving up Florida’s homestead protections. But there are also disadvantages to using a lady bird deed, and you (or your elder law attorney) should understand those downsides when creating your estate plan.

1. Less Flexible than a Trust

Although the lady bird deed provides greater flexibility than the traditional life estate deed, the lady bird deed provides less flexibility than a living revocable trust. For example, the lady bird deed cannot hold property for a person until they reach a certain age or milestone. However, a living trust could handle this without any problem.

Living trusts are not perfect either though. Moving homestead to a living trust could result in losing homestead protection. This is not a settled area of law, so moving your homestead into a trust comes with its own risk.

Thankfully, there is a way to get the best of both worlds. You can use a lady bird deed to transfer the homestead into a revocable living trust at your death. That way, you keep homestead protection during your lifetime but also get the flexibility benefits a trust.

2. Lack of Familiarity

Not everyone is familiar with lady bird deeds, including some title insurance and mortgage companies. Depending on the company you go through, a lady bird deed could make refinancing your property more difficult than it would be if the property had simply been held in a living trust. That being said, many major title insurance and mortgage companies—especially Florida-based companies—are very familiar with lady bird deeds and will have no problem working with such a deed.

3. Uncertainty

Unfortunately, Florida courts have given us little guidance about the legal boundaries of a lady bird deed. Thus, we do not know for sure whether a lady bird deed can be revoked by the grantor without selling the property to a third party. Additionally, because of Article X, Section 4 of the Florida Constitution, we do not know whether a lady bird deed will be effective when the grantor has a spouse or minor children. (Although I tend to think the answer would be “no” based on an old Florida Supreme Court case.[i]) We also do not know whether the remainder interest is contingent or vested, which impacts the other two open questions mentioned in this paragraph. All of this legal uncertainty may make other estate planning options better solutions for some people.

4. Creditors and the IRS

If the remainder beneficiary of a lady bird deed has a creditor seeking repayment of an outstanding debt, that creditor could potentially attach a lien to the remainder interest. This is also potentially trust of tax liens. However, there is some legal uncertainty about whether private debtors could attach a lien to the remainder interest.

This means that if you use a lady bird deed to transfer property to your son, who then gets behind on taxes, you might have to get rid on an IRS lien on your property if you try to sell it later. But this problem is resolved if you use a lady bird deed to transfer the homestead into a revocable living trust at your death (the same solution we provide to the flexibility problem discussed above).

5. Risk of Incorrect Drafting

Incorrect drafting of a lady bird deed can cause many problems. For example, an improperly drafted deed may fail to keep the property out of the probate estate if the remainder beneficiary dies before the grantor. This contingency should be dealt with from the outset. Another problem is when improper drafting causes a title company to decline to insure the title, meaning the home cannot be sold with a mortgage in Florida. For example, problems arise when the deed does not state that the grantor can transfer the property without the grantee’s consent or approval.

Should I Use a Lady Bird Deed?

Despite all the downsides, the lady bird deed is still a great estate planning tool. When used correctly, it avoids probate, transfers property without a hassle, and avoids the Medicaid lookback penalty. These are fantastic benefits, and I have advised many of my clients to use a lady bird deed. The key is to find the right solution for your unique situation. You also want to make sure you are speaking with an attorney who is aware of the disadvantages discussed above and can help you mitigate those problems while still retaining the benefits.

What to Look For in an Attorney if You Need a Lady Bird Deed

If you need a lady bird deed, you should seek out an elder law attorney who understands the history, nuances, and risks of the Florida lady bird deed. Ideally, the attorney’s practice will focus on the drafting and usage of estate planning documents. This will increase your likelihood of finding a lawyer with a deep understanding of the practice area. It can also be helpful if the attorney offers a free consultation, as this will give you an opportunity to get to know the lawyer before making any decisions.

References

[i] Johns v. Bowden, 68 Fla. 32 (1914).