lt's The Law
The "Lady Bird Proviso" Avoids Probate
I am a retired Michigan attorney enjoying my old age and winters in Bonita Springs. Like many residents I belong to a golf group all of which members are retired. Often during a round, in contrast to discussing individual ailments, legal issues become the topic of conversation and generally encompass what I would refer to as "basic" estate planning. One such issue addressed was the utilization of entitling real estate ownership among named grantees with rights of survivorship as a common method of avoiding probate. I voiced my opinion that this assumptions was partially correct.
The first to die would not require probate, however assuming no changes in title were made after the first to die, the death of that survivor would require probate. I have since been appraised that Florida has a "Lady Bird" proviso which I am not familiar with that may alter my aforementioned opinion. I should learn to keep my opinions to myself especially in jurisdictions of unfamiliarity. Please explain the "Lady Bird" proviso.
The "Lady Bird" proviso is a relatively recent addition to the Florida estate planning arsenal. It is technically known as an enhanced life estate deed but is often referred to as a Lady Bird deed. The deed is reputed to have obtained that name because former President Lyndon Johnson used that type of deed to transfer property to his wife, Lady Bird Johnson. Lady Bird deeds are not officially recognized by statute, but have been used throughout Florida by estate planning practitioners.
A traditional life estate deed grants someone ownership for his or her life after which title passes to a second person, known as the remainderman. The person owning the property for life cannot deed it or mortgage it without addressing the interest of the remainderman. Although the remainderman does not own the property immediately, he or she has a vested interest that ripens to ownership on death of the life estate holder. For that reason, it will be difficult to find any lender willing to lend with a mortgage secured by the property, unless the remainderman also joins in the mortgage. Similarly, few would be willing to pay for the right to own a property during whatever is left of the life estate owner's lifetime.
Life estate deeds have been used as part of an estate plan by some who want to avoid wills or trusts. They are part of a plan under which children or beneficiaries are added as payable-on-death beneficiary to financial accounts and retirement plans and ultimately added as remainderman through deed of a life estate to the owner, with remainder to the children. The traditional life estate deed carried with it problems. If the remaindermen die before the life estate owner, there would be no remainderman to take title without probate. If the property owner did not have a will, the property would pass in accordance with Florida's intestates laws and might end up in the hands of relatives contrary to what the owner would have wanted.
The Lady Bird deed addresses one problem. In the Lady Bird deed, the owner reserves the right to convey or mortgage the property without joinder of the remainderman. That provides the owner flexibility during the owner's life, but still an automatic transfer to the remainderman at the owner's death. The Lady Bird deed does not solve the problem of no living remainderman.
Because the Lady Bird does not solve all of the shortcomings in the traditional life estate deed, we generally recommend use of a living trust to avoid probate. The trust provides that the owner can deal with property in the trust in any way the owner desires during the owner's lifetime and provides for distribution at the owner's death. Because the assets are in a trust, they do not go to probate. And, if all of the owner's assets are placed in the trust, changing the distribution plan is a simple matter of modifying the trust as opposed to modifying a deed to real estate or payable-on- death designation of various accounts.
Use of a living trust avoids other problems with the Lady Bird or life estate deed. One problem is where the remainderman is less than all of the owner's children. Although Lady Bird deeds are insurable by title insurers generally, where some children are excluded as remainderman, title insurers will not generally insured title from those deeds. The basis for refusal is that when one child is favored over another, suit alleging undue influence is often the result.
Another drawback to the Lady Bird deed is the possibility that a creditor claim or judgment against a remainderman may cloud the title even before the owner of the life estate dies. It might seem that a judgment against the remainderman should only attach when the remainderman actually takes title. But, title insurance companies in Florida believe that such liens attach to the property immediately and therefore will not issue title insurance policies excluding the lien. I am unaware of any Florida court decision to the contrary.
The Lady Bird deed is an option for those wishing to avoid probate. It has the benefit of allowing the owner to have full use of the property and retains the right to sell or mortgage. But, it is not without problems and in most situations a revocable living trust would be a preferable alternative. For these reasons, discussion with an experienced estate planning attorney is always a good idea as part of the estate planning process.
By: William G. Morris, Esquire
William G. Morris is an attorney with offices at 247 North Collier Boulevard on Marco Island, Florida. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.
Questions for this column can be sent to: William G. Morris, e-mail: firstname.lastname@example.org or by fax, (239) 642-0722 or
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