Lady Bird Deed On Mortgaged Property

An enhanced life estate deed, also known as a Lady Bird Deed, has some advantages over a conventional estate plan in certain circumstances.

Making a Lady Bird deed may be a good way to avoid probate and be eligible for Medicaid reimbursement for long-term nursing care if your state permits them.

Moreover, this type of deed is not legal in New York. A lady bird deed is only used in Florida, Texas, Michigan, Vermont, and West Virginia.

What Is a Lady Bird Deed?

Only a few states have approved an “enhanced life estate deed,” also known as a Lady Bird deed. To comprehend the distinctive features of a Lady Bird deed, one must first comprehend a conventional life estate.

With a traditional life estate deed, the property owner (the grantor) retains the right to reside on the property until their passing; at that point, the grantee is given ownership of the property.

The grantor of a traditional life estate forfeits the ability to sell or mortgage the property, which is a significant disadvantage.

Additionally, a Lady Bird deed permits the grantor to occupy the property up until their passing before transferring it to the grantee.

The life estate is “coupled with an unrestricted power to convey during the Grantor’s lifetime,” according to a clause in a Lady Bird deed form. It’s crucial to check that the deed complies with state law, though.

States That Allow a Lady Bird Deed

Currently, only Florida, Michigan, Texas, Vermont, and West Virginia are permitted to use Lady Bird deeds.

Approximately half of the U. S. A transfer on death (TOD) or beneficiary deed, which is comparable to and possibly preferable to a Lady Bird deed, is available in states. In the same way that a bank account may have a designated beneficiary, TOD deeds name a beneficiary upon the death of the grantor.

The Purpose of a Lady Bird Deed

A Lady Bird deed and a traditional life estate deed are primarily used to avoid having to go through the probate process after the grantor passes away. Additional benefits of a Lady Bird deed include:

  • Being able to sell or mortgage the property, or outright cancel the deed
  • Being able to qualify for Medicaid benefits for long-term care
  • Retaining the state homestead rights and property tax limitations
  • Avoiding federal gift tax
  • Protecting the property from claims against the grantee
  • Lady Bird Deeds and Medicaid

    If the grantor ever wants to apply for Medicaid to pay for long-term nursing care, a Lady Bird deed may be helpful.

    Your assets must be worth less than a certain amount in order to be eligible for Medicaid. Many states permit you to maintain your primary residence and remain eligible.

    However, if you use a traditional life estate deed to avoid probate in the five years prior to applying for Medicaid, the value of your home will be considered an included asset and you might not be eligible for Medicaid. Using a Lady Bird deed prevents this from happening because it is not regarded as a transfer.

    In order to recoup the benefits paid when a Medicaid recipient passes away, Medicaid may file a claim against the person’s probate estate. The house is not included in the probate estate thanks to a Lady Bird deed, so Medicaid cannot pursue it.

    Disadvantages of a Lady Bird Deed

    In the following scenarios, a Lady Bird deed might not be the best course of action:

  • If you plan to apply for a mortgage on the property, some title insurance companies may be reluctant to provide title insurance on property subject to a Lady Bird deed.
  • You want to leave the property to more than one grantee.
  • There is a fairly large mortgage balance on the property.
  • You want more flexibility, such as being able to name an alternative beneficiary in the event the grantee dies before you do, in which case a trust may be better.
  • Some states limit property tax increases, which ends upon transfer. Because property taxes may increase substantially for the grantee, a trust might work better.
  • Lady Bird Deeds Compared with Other Documents

    In any estate plan, additional types of documents are likely to be taken into account.

  • Lady Bird deed vs. quitclaim deed. Both quitclaim and warranty deeds would transfer full ownership of the property to the grantee. Neither of these allows the grantor to continue to live on the property, nor offers any of the other advantages of a Lady Bird deed.
  • Lady Bird deed vs. revocable trust. A revocable trust can accomplish the same things as a Lady Bird deed. If your primary home constitutes most of your net worth, the Lady Bird deed cost will be much less than the cost of having a revocable trust created. If you have a significant amount of property of any type in addition to your primary home, a revocable trust may be a better way to go.
  • Lady Bird deed vs. will. If a Lady Bird deed conflicts with a will, the deed controls. The only exception is if the grantor invokes the right to cancel the deed.
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    What are the disadvantages of a ladybird deed?

    Disadvantages of a Lady Bird Deed
    • Some title insurance companies might be hesitant to offer title insurance on property covered by a Lady Bird deed if you intend to apply for a mortgage on the property.
    • You desire to name multiple grantees as the property’s final owner.
    • There is a fairly large mortgage balance on the property.

    What are the disadvantages of a Lady Bird deed in Florida?

    Disadvantages to lady bird deeds in Florida include:
    • Lack of Asset Protection. The property transferred by a lady bird deed, other than a homestead, may be subject to a lien from a current owner’s creditor.
    • Constitutional Restrictions. …
    • Unexpected Deaths. …
    • Changes to the Estate Plan.

    Do you pay taxes on a Lady Bird deed in Florida?

    When you execute a lady bird deed, there are no documentary stamp taxes due. If you transfer real estate in Florida for any consideration, including the amount of any mortgage on the property, you must pay documentary stamp taxes.

    Can a Lady Bird deed be revoked in Florida?

    A Lady Bird deed is a life estate and remainder deed with the life tenant, or the deed’s grantor, retaining the right to revoke that designation at any time during their lifetime.