The vast majority of Floridians (or Americans for that matter) only own one piece of real property (real estate) – a residential home. Though a home is not a “probate asset”, a probate may still be required to transfer that home to one’s heirs or beneficiaries after the record homeowner’s pass away.
Luckily, you have options. The one tool that we often recommend as part of an otherwise simple estate plan is commonly known as a “Ladybird Deed” though its formally referred to as an “Enhanced Life Estate Deed”. Enhanced because a normal Life Estate Deed does not include the special features of the Enhanced version.
A standard Life Estate Deed grants property to someone, for the remainder of their life and then upon that person’s death, passes the property to another person (the remainder beneficiary).
An Enhanced Life Estate Deed allows the grantor (the giver) to grant the property to someone but allows the grantor to retain use and enjoyment of the property until the pass away. Further, the grantor retains the ability to encumber the property or essentially revoke the transfer in its entirety.
Example:
Mary executes a Ladybird Deed (Enhanced Life Estate Deed) to her son, James.
Mary retains the right to:
- Take a mortgage on the property
- Sell the property
- Gift/grant the property to someone else entirely
However, if she still owns the property at her death, James becomes the automatic owner of the property. No probate, no fuss.
Ladybird Deed Tax Advantage
What’s more, James receives a “stepped up” tax basis in the property as if he had inherited the property via the probate process. This is a far better tool than a “Quit claim” or standard “Warranty Deed”, neither of which include the stepped up tax basis. Quickly, if Mary had simply quit claimed the property to James, and he subsequently sells the property, he might have capital gains taxes calculated using Mary’s original purchase price. With a stepped up tax basis via Ladybird deed (or inheritance), James’ basis in the property is the date of death value leaving virtually no capital gains tax if he sells the property shortly after Mary’s death.
Overall, the use of a Ladybird deed has clear advantages in an otherwise simple estate plan. Though a Last Will and Testament is still strongly recommend for virtually any adult, the Ladybird deed can eliminate concerns about the passing of real estate.
