Should I Consider a Ladybird Deed as Part of My Estate Planning Strategy?
Ladybird deeds are popular devices for transferring real property. Homeowners may use a ladybird deed to designate a family member or other heir to inherit the property on the death of the homeowner. These deeds provide numerous other benefits as well.
What Is a Ladybird Deed?
Some thirty years ago, a law professor created a hypothetical example of how property could be transferred from a husband to a wife using a deed with special language to achieve particular benefits. In the example, the law professor chose to use President Lyndon Johnson and his wife Ladybird Johnson as the hypothetical characters for his example. The term ‘ladybird deed’ was thus born.
How Does a Ladybird Deed Work?
A ladybird deed generally looks like other types of deeds. The deed identifies (i) the grantor (the person who currently owns the property), (ii) the grantee (the person who is to receive the property), and (iii) the legal description of the property. In addition, the deed is correctly signed, witnessed, and notarized. In short, the basic requirements of a deed are satisfied.
In addition, the deed includes special language that conveys ownership of the property to the grantee, subject to certain rights retained by the grantor. In other words, the deed transfers the property to the grantee, but that transfer is not effective until the death of the grantor. Further, the grantor retains certain rights to modify or cancel the transfer of the property to the grantee for any reason during the lifetime of the grantor.
What Rights Does the Grantor Retain?
The grantor typically retains rights such as the following in a ladybird deed:
The grantor retains the right to sell the property at any time. This means the grantor can sell the property without the consent of the grantee.
The grantor retains the right to gift the property (including ‘bargain sales’ of the property for less than fair market value).
The grantor retains the right to mortgage the property without the grantee’s consent, including any mortgage in place at the time the ladybird deed is created.
The grantor retains the right to lease the property.
The grantor retains the right to ‘otherwise dispose of’ the property. The intent is to give maximum flexibility to the grantor to deal with the property as desired without any requirement for the involvement of the grantee.
The grantor retains the right to reside in the property during the grantor’s lifetime.
The grantor retains the right to revoke the ladybird deed.
What Benefits Does the Ladybird Deed Provide?
Properly drafted, a ladybird deed provides several important benefits, such as the following:
Perhaps most importantly, the grantor retains control over the property during the lifetime of the grantor. As noted above, the grantor may choose to sell the property, give it away, or take other actions with respect to the property. Further, the grantor may revoke the deed (and the grantee’s rights) entirely for any reason.
Married grantors hold the ladybird deed benefits jointly. Upon the death of one spouse, the other spouse enjoys the benefits described.
The grantor retains homestead creditor protection benefits for the property.
The grantor retains property tax benefits for the property.
If the property is the grantor’s homestead, the value of the property is not counted if the grantor applies for certain Medicaid benefits.
After the death of the grantor, the grantee becomes the owner of the property without probate administration. Generally, the grantee needs only to record a death certificate for the grantor to establish title in the grantee.
Who Can Be the Grantee?
The grantee (the person who receives the property) can be any individual or entity. The grantor decides whom to name as grantee, which is generally not a difficult decision because the grantor typically desires for the home to stay within the family.
Clients often name their revocable trust as the grantee, thereby guaranteeing that the property will pass according to their general estate planning objectives (and avoiding the risk that a grantee predeceases the grantor, which might necessitate probate administration).
Is a Ladybird Deed Revocable?
Yes. Properly drafted, a ladybird deed may be revoked by the grantor. The grantor may then create a new ladybird deed or other deed for the property.
Is a Ladybird Deed the Same as an Enhanced Life Estate Deed?
Yes. The term ‘enhanced life estate deed’ just refers to the special language in the deed.
Should I Have a Ladybird Deed?
That depends on your circumstances. Many clients find that ladybird deeds perfectly satisfy their objectives.