By Eddie R. McClendon
“Lady bird deed” is a funny term for a real estate transfer that is also known as an enhanced life estate.
An enhanced life estate deed is a quite simple, yet utterly amazing, part of many successful estate planning strategies.
Lady bird deeds are commonly used tools in Medicaid planning and probate-avoidance strategies because they allow the person retaining the enhanced life estate to retain complete power over the property.
To understand what a lady bird deed is, let’s discuss a few property law principles.
• Deed: a written memorialization of a transfer in property ownership. Generally, real property transactions must be memorialized in a written instrument (a deed).
• Life estate: a property interest measured by the life of the “life tenant.” The life tenant holds a present possessory interest in real property until his/her death.
• “Remainder”: what is left once the life tenant dies. A person who holds the remainder interest is called the “remainderman.” The remainderman’s interest is a future interest.
In a typical life estate scenario, the creation of the remainder interest cannot be undone. In fact, the remainderman has a marketable future interest in the property that can be sold to another person.
This is where a lady bird deed differs from a typical life estate. The life tenant in a lady bird deed retains the power to sell, mortgage, encumber, or convey the property while he or she is still alive. This means the remainderman only receives a marketable interest if the life tenant owns the property at death.
The potential power of a lady bird deed as an estate planning tool rests largely in the fact that the remainderman’s future interest is not marketable. For instance, a transfer using a lady bird deed does not affect the Medicaid lookback period or Medicaid eligibility. This is because transfers of property ownership using life estates occur without the necessity of probate.
I encourage you to seek the counsel of a professional regarding any questions you have about lady bird deeds or other estate planning tools. I have never heard a client complain that a loved one left an estate plan!
Eddie R. McClendon is an attorney practicing in Palo Pinto and Parker counties.
Corner Post Financial Planning and the Law Office of Eddie R. McClendon are separate entities from LPL Financial. LPL Financial does not provide tax or legal advice.