A “Lady Bird” deed preserves the homeowner’s ability to immediately qualify for Medicaid benefits including payment for nursing home care.
Here’s how it works: Transfers of assets within a “look-back” period may disqualify Medicaid applicants from immediately qualifying for benefits—but creating a Lady Bird deed, also called 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. No gift is ever made.
This deed is nicknamed “Lady Bird” because the Florida attorney who first drafted the deed used the name in his example. Sorry, Texans, we don’t get to claim this Ladybird.
What are the legal details?
A Lady Bird deed, technically called an enhanced life estate deed, allows a property owner to transfer a remainder interest in a home to the beneficiaries named in the deed, while reserving a life estate (a right to occupy and use the property during his or her lifetime) The grantor (or person who creates the deed) also keeps the right to sell or mortgage the property, change the remainder beneficiaries at any time, or cancel the deed altogether.
If the owner dies without revoking the deed, the property passes outright to the remainder beneficiaries without going to court.
How is an enhanced life estate deed different from 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. That’s why it’s enhanced I guess.
Plenty of benefits to enhanced life estate deeds
Enhanced life estate deeds offer many advantages over traditional life estate deeds:
- 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. No gift is ever made.
- They provide homeowner the flexibility to change the remainder beneficiaries at any time.
- They allow the homeowner to sell or mortgage the property without the consent of the remainder beneficiaries.
- They protect the property from the creditors of the remainder beneficiaries during the homeowner’s lifetime.
- 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.
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.
Can a trust be a beneficiary?
Yes, a trust can also be a beneficiary. If you love your family but don’t want them to have property outright for whatever reason, sometimes we create a revocable trust to hold the property.
Need help creating a Lady Bird deed or qualifying for Medicaid nursing home benefits? Give us a call at Weaver Firm – Attorneys at 817-638-9016 to schedule an appointment.