Tuesday
Dec222009

The "Ladybird" Deed

In recent years a new form of conveyance of real property, the "enhanced life estate deed," has been gaining popularity. Florida title underwriters, most notably the Lawyer's Title Fund (often referred to as "the Fund") fully recognize this type of ownership, which can be established through an appropriately‑worded deed. But what is an "enhanced life estate?" To better understand this term, we must look back at the history of life estate transactions as it applies to Floridians.

In the misplaced hope that senior citizens could "avoid probate" and make things "simple" for their loved ones upon their deaths, many people have turned to the use of a quitclaim deed of their property to their children while retaining in themselves a life estate interest. The language used in such a deed is some variation of, "Mary Jones, an unmarried woman, as Grantor, to Mary Jones, an unmarried woman, FOR LIFE, with the remainder interest to Jack Jones and Steven Jones, both married men, collectively as the Grantees." This form of conveyance creates an estate for life in Mary Jones and a remainder interest (that which remains after Mary's death) in her two sons, Jack Jones and Steven Jones.

Using this traditional form of conveyance, Mary Jones could not sell or encumber (e.g., mortgage) her property without the joinder of both her sons, Jack Jones and Steven Jones. Then, too, creditors of either of Mary's sons could obtain an enforceable lien against Mary's home, because neither son can claim Mary's home as his homestead property. Moreover, both sons being married, their respective wives can claim an interest in the property, either upon their husband's death or in the event of a divorce. If Mary and one of her sons have a falling out, that son could impair Mary's right to sell or otherwise dispose of her home. Since there are remainderpersons (the sons) who have an interest in Mary's home, Mary owes her sons a duty to not commit waste as to the home (this term, "waste," is a legal term which imposes special obligations upon Mary). These are just some of the potential problems with the traditional form of life estate.

The enhanced life estate (also termed a "Ladybird deed" in honor of the late former First Lady, "Ladybird" Johnson) recites that Mary retains the right to dispose of her home as she sees fit, can lease it, encumber it, etc., and shall not be liable for legal waste, wholly avoiding the need to obtain the consent or cooperation of the remainderpersons should she wish to exercise those retained rights. This also means that Mary Jones can mortgage, sell or otherwise change title to her home at any time in the future, without the need of even notifying her sons. Florida title companies now accept this form of conveyance, and it is a recommended alternative to the traditional life estate deed. This form of life estate also avoids unwanted capital gains taxation, and life estates are excluded assets when determining Medicaid eligibility.