The Enhanced Life Estate Deed (Lady Bird Deed)
The State of Florida is one of the few states that recognizes a fairly recent development in real estate law: The enhanced life estate deed. This deed has become an extremely popular estate-planning tool because of its many advantages and flexibility. So, what is it? How is it created?
First let’s clarify what a regular, rather than enhanced, life estate consists of. The regular life estate deed is an outright transfer of property, effective upon execution and delivery of the deed. In general, a regular life estate is created by a deed in which a person, the life tenant, reserves to itself the use and possession of a property during the person’s lifetime and upon the person’s death the property passes to another person or persons, called the remaindermen. Upon execution of a regular life estate deed the property belongs to two or more persons: the life tenants and the remaindermen. In a regular life estate, in order to mortgage or sell the property it is necessary that both the life tenants and the remaindermen execute the mortgage or deed of sale.
The enhanced life estate is also created by a deed, but is not an outright transfer of property, but rather, a transfer of property subject to and contingent upon the death of all the life tenants. In other words, the remaindermen do not have a legal right to the property until all the life tenants die. Upon their death, then and only then, the remaindermen become owners of the property.
In a regular life estate, the right to inherit the property is vested in the remaindermen upon the execution and delivery of the deed. In an enhanced life estate, the right to inherit the property is acquired only upon the death of all the life tenants.
In an enhanced life-estate deed there is language reserving in the life tenant the right to sell, convey, transfer, mortgage, collect proceeds of any sale, and in general do anything the life tenant desires to do with the property during its lifetime, without the consent of the remaindermen. This is what distinguishes the enhanced from the regular life estate.
The regular life estate is a tool normally reserved for elderly persons, in order to avoid probate proceedings. The enhanced life estate, because of its flexibility, has become an estate-planning tool for younger persons, who are now free to do whatever they desire with their property, while providing an effective tool to avoid probate of the property in case of an unanticipated death, without the need of a will. The resent pandemic has provided an additional incentive for the increased popularity of the enhanced life estate.
When a regular life estate deed is executed a gift tax is imposed since the remainder persons acquired a right to the property at that time. On the other hand, when an enhanced life estate deed is executed, there is no gift tax imposed because the gift is not complete until the death of all the life tenants. A very important aspect of the enhanced life estate is that the homestead exemption is not affected by its execution.
Please call our office to make an appointment should you need additional information about how to create an enhanced life estate.