Discover the Secret Deed that Helps Homeowners Avoid Probate (Hint: Lady Bird Deed)

In Episode 4 of Learn Laws, host James White and Attorney Andrew Easler dive into Lady Bird Deeds (Enhanced Life Estate Deeds). Learn their origins, benefits, drawbacks, and where they apply.

Transcript

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- Welcome to Learn Laws where knowledge- Is power. Now, legal advice just for education, the real counsel, don't- Roll the dice. Always speak with the license to serve. Welcome to Learn Laws. I'm James White here with attorney Andrew Easler. And today we're going to be discussing Lady Bird deeds. They're often called Enhanced Life Estate Deeds. So Andrew, let's get started. What is a lady Bird deed?- Yeah. Lady Bird deed is just a document that you file with your local county recorder that tells everyone in the, in the public that you want your interest to pass to a specific name beneficiary.- Oh wow. That's very interesting. So where did the lady bird deeds come from?- Yeah, so a lady bird I- Originate, I should say.- Yeah. So the, the name Lady Bird Deed actually came back from the eighties. There was an attorney that was going around telling people about how to utilize this particular strategy, and in his example explanation he kept on using Lady Bird Johnson, the wife of the then president, a former president in his examples. Okay. And so everybody just colloquially started calling it Lady- Birded. Was that Lyndon b Johnson?- Yep. Yeah. Okay. You got it. Perfect. Okay, awesome. Lyndon- Johnson. Sounds good. So what are the, what are the use cases of a lady Birded? So, we're often, you know, I get this question all the time, especially being in Florida where Lady Bird des are very popular. What is a lady birded? Most people don't even understand what a lady Birded and AED is and how it works.- Yeah. So before the lady bird deed concept came around, if you wanted to make sure that some third party received your property interest after you passed, there were only a couple different options. Right. The first option was to put your property into a trust. Right. And that's still a very good option for a lot of people, but it's not cheap. Right.- Of course.- So the second option would be to create a life estate for yourself and then a remainder interest and let's say your children. Okay. So to explain what that is, let's talk about a life estate.- Sure.- A life estate is a right for you to reside in your property, in your home for your lifetime. And then upon your passing it's gonna go to the remainder interest holder or interest holders who are ready and waiting to receive that property on the other side. Of- Course.- Okay. And that life estate deed is how you accomplish that. You just file a deed and say, Hey, here, this is what I want. But the, the drawback of that is that you have liability as the life tenant. The person who originally owned the property and now wants to give your interest after you pass away to your third party, you have a responsibility to that remainder interest holder. Now. Ah, right, okay. You have to preserve the property, keep it up, make the mortgage payments, do all these other things, and then if you wanna get a mortgage or if you wanna lease it out, or if you want to sell it to some third party, you typically have to get their approval. So who wants to go ask their kids for approval to go sell their house when they wanna their house?- It doesn't make sense.- It doesn't make sense,- Of course. So nobody would probably ever do that or want to do that anyways.- Right. I mean, even if you really, really, really trust your kids, most people don't. Yes. But if you really, really do, you know, you don't know if they're gonna be available. Right. What if they, you know, something happens to 'em, they can't even sign the documents to, to make sure that things happen.- Yeah. That's just, it's- So, it's a little too risky for, for a lot- Of people way I that's very risk. Right,- Right. Yeah. So the, the lady bird deed enhances that life estate, that's why they call it enhanced ah, life as estate- Deed. Now it's making sense. Yeah. Right. That makes- Sense. So we start off with that same concept of where you have a life tenant yourself, and then the remainder interest holder, let's say your kids. But you say in that deed, Hey, I want to reserve these rights for myself. I want to be able to mortgage it myself without the signature of the remainder interest holder. I want to be able to lease it. I wanna be able to sell it, and I don't wanna be liable for any kind of waste, which is, you know, when letting the property go into disrepair or, you know, not utilizing it to its full fullest potential. So, so that's where the, the enhanced part comes in. Now, this particular tool is only applicable in five out of the 50 states in the United States. Florida is one of them. Yeah. And so, fortunately we get to use those quite quite a lot. But outside of that, unfortunately, you're, you're stuck between a trust and a life estate deed. If you're not in one of those five states.- What are the five states? We have Florida, we have Texas, we have- Michigan, West Virginia. Which one are, are we missing?- Are we, are we missing one? Or what are we missing here? We have West Virginia. So let's see here. Oh, we have Florida, Texas,- Texas, Texas,- Florida, Texas, Michigan, Vermont, and West Virginia. Okay. Yes. I'm glad I did that because we were, yes. So there you go. So we have five states. Right. The other, so the other remaining states would be- Either they don't recognize the lady bird deed at all. Yeah. Or they have a mixed concept where you don't necessarily get all the same privileges as you would in one of these five states.- Got you. Okay. Perfect. So- You'll have to talk to, to an attorney in that area to figure out what the best solution- Is. Yeah. To determine which the best course for you. So what are the pros of a lady bird deed? We've already sort of briefly touched on them, but what are the main pros that somebody that's looking to do a lady bird deed or doesn't understand what a lady bird deed is that they would want to know?- Right. So first I want to address some misconceptions. Right. So a lot of people think that if they have a will, let's say, you know, you go to an online database and download a will and sign it, as long as it's executed properly, everything's gonna go in accordance to that will Well it's not necessarily that quick. Okay. Right. And in the state, like Florida, we have to go through a procedure when you pass away to get it out of your name and into the name of the people that you want it to go to by default. Okay. So unless you have some other kind of a way, way to avoid probate, such as us, utilization of a trust or a pay on death clause, like a life insurance policy. Yeah. Right. Then we gotta go to a judge and ask the judge to transfer it out of your name and into the name of the people that you want to. Okay. A life estate deed or enhanced life estate deed, that's also a technique to avoid probate. So that's the number one benefit. The whole reason you're doing this is so that you don't have to go ask permission from a judge to get mom or dad's property into your name after they pass- Away. This automatically happens upon death.- Yes. So it, it automatically happens upon death, but legally the official legal title transfer occurs when you record it in the county recorder. That's basically putting everyone on notice that hey, the life tenant has passed away. It terminated the life tenancy. And now as the remainder interest holder, I am now the equitable and legal title holder to this property.- Oh, okay. That makes, okay. That's, that's starting to make a lot of sense now. Okay. Perfect.- Okay. So, so that, that's the biggest benefit.- Yeah. - The, the biggest drawback is that it does not avoid probate in some circumstances. Right. You don't get a lot of freedom to choose what to do with the property after it passes. So if you name somebody who happens to not be around by the time you pass away, then it's not gonna avoid probate. Right. Obviously if, if you name Aunt Jean to be the person to receive it and Aunt Jean passes away with you in a car accident at the same time and you obviously don't have time to go in and record a new deed to update that. Yep. Which is one of the benefits of a late enhanced life estate deed is you can go in and change- It. Right.- At any time. At any time, as long as you've got capacity to do so.- So if I have a property and I decide to put you as the name beneficiary of my lady bird deed, right upon me, me dying, you'd get the, the property or the title of the property and we get into a fight, I don't like you, whatever the reason, I could then go to my attorney and update that, take you off of that deed without any like, permission from you at all.'cause it doesn't matter. And then I can put somebody else on that deed. Right. And then if I pass away it go to that specific- Person. Right. Whereas a regular life estate deed, you would need my permission to do that. So that you said beneficiary, I wanna make sure everybody's clear that official legal term is remainder- Man remainder. Okay. Perfect. Okay. Okay. That makes sense. Okay.- Now another benefit to this is it's much more affordable. Right. It's, it's basically the cost of a deed to, to go ahead and record this. So as opposed to doing a trust. Right.- Which is a lot more money.- Which is a lot more money. So that's another big benefit.- So that's a Well, that's a big benefit. Yeah. Huge. I mean it's, it, it's more straightforward, it's simple or much simpler than a trust obviously, you know, a trust and it's obviously can be a lot more advantageous towards estate planning, whatnot as well. So that's, that's very interesting. So what are the, so is there, is there any more cons to the a ladybird deed or are they pretty limited based on, you know, because you can swap, swap out the remainder remainders, is that what I said? Remainder min- Remainder men. Yeah. So you can always, always terminate the, the remainder interest and you go back to the original ownership that you had. Yeah. Which usually we presume to be fee sample.- Absolute. And you can buy and sell the house without, or you could sell the house, I should say without Yep. Without giving notice to anybody. It just automatically sells. And then you, if you buy new property, you can re-add those people on later on. So you don't need the permission to buy, sell, or do anything like that.- Right.- Remortgage or, or all that fun stuff.- Absolutely. Okay. Perfect. So another, another thing to consider though is you will retain ownership and control over that property during your lifetime. Now if you had put this into a trust, and let's say you lose your capacity, maybe you are in a coma. Yeah. Or maybe you, you diagnosed with, you know, degenerative disease and your mental fa mental faculties are, are lost, right? Yeah. And they maybe want to sell the property or lease it out to help pay your medical expenses or something like that. They would need a power of attorney over you to basically control and, and, and accomplish those, those- Tasks. Okay. So that gives the, that gives the actual title, the current title holder or the property owner some protection.- Well, yeah. The, the life tenant themselves retains control. That's one of the benefits that we like.- Right? Yes. That's a big benefit.- Yeah. But, but the drawback is if something happens to you where you're not able to make those decisions yourself. Right. Let's say you're in a hospital in a coma- Yep.- And you're not waking up.- Yep.- Right. But it's important for your, you know, for your estate, for your, you know, property to pay your bills, whatever that we need to sign a new lease agreement to rent out the place.'cause you're not living there anymore. Right. And maybe we need the, that money in coming in to pay the mortgage, pay the property taxes. Sure. Right. Well, nobody can sign on that on your behalf unless they have a power of attorney over you.- Ah, okay. - So, or if they have a guardianship over you.- So that's why lady be deeds are often used in conjunction with estate plans.- Right. So of course it's, it's more affordable than doing a trust, but if you had a trust that owned the property Yeah. Then the trust, the next in line trustee who would take over while you're incapacitated could sign on, be your behalf without having to get permission or guardianship from a court. Okay. Right. Now, of course a power of attorney would be able to do that as well. But you know, it's just one of those things that we need to consider is, okay, well if we're still keeping in your individual name, then that means you are the only one who has control over it. And, and if you obviously can't do that for, you know, physical or mental reasons, then that's a, a potential drawback.- Oh, okay. Perfect. Wow. That's, that's very interesting. And so the, what are the, so the rights of the, the rights of the, the property owner is they can buy and sell whenever they want or they can refinance.- Yeah. So the enhanced life tenant is the official title of the, the the property owner. Right. Or the life tenant. They have control over that property during their lifetime and they have the right to sever the interests from the remainder interest holders sell the property, do what they need to do. The remainder interest holder really doesn't have a lot of control and in a li enhanced life estate deed as they would in a life estate- De So you really don't have any responsibilities is what I'm saying is so if I'm named in a lady bird deed right. As the person to receive that property upon somebody's passing, then there wouldn't be any responsibility for me to like, maintain the property, why the person's living in that house. I just get the property transferred into my name or title into whatever I title it to upon their passing.- Yeah, absolutely. Okay. That's, I mean that's one of the, the potential drawbacks of an enhanced life estate deed too, is if you're expecting that person to help, you know, pitch in when there's a major repair, you have to redo the, the roof for example.- Yeah.- That's something that a remainder interest holder would be responsible for helping you with. Right. Minor repairs, that's the life tenant's responsibility.- Ah, very- Interesting. But you know, if the roof is gonna collapse and all of the, the interest in the property's gonna start Yeah. You know, degenerating because you know you have no roof then is the remainder interest holder's duty to contribute. But if you have no liability for waste in your enhanced life estate deed, then that remainder interest holder's not gonna pitch a penny in.- Oh wow.- Necessarily.- So, okay. So lady bird deeds have a, have a purpose and a function. But ag again, it depends on the specific, the specific needs and wants of that person and what they want to actually have happened.- Right. - According through estate. 'cause some people don't want Lady Bird des some people do. You know, again, if some people have maybe a simple estate, all they really have is real estate. I think that's where a lot of people use Lady Bird Des is if they have a simple estate with not a lot of assets, maybe just their house and because of the house or the property is really their number one asset, a lady IDE will generally solve that problem to help people avoid probate in the event that they die without a will.- Yeah, yeah. And I've even seen people name non individuals as the remainder interest holder. Oh wow. So you could name a company as a remainder interest holder, or you could even name your own trust as, or- Charity- As a remainder of, or charity.- Absolutely. Okay. So if you have no, if you have no, like beneficiaries, you have nobody you wanna leave the property to and you wanna leave it to like say a dog shelter or a rescue animal rescue shelter, you could say upon my passing it's going to go to X, Y, z you know, charity. And then those people would then, you know, receive the property upon the passing office. Obviously you'd probably notify these individuals or the people that are running these organizations that, Hey, I'm giving you my property upon my death.- Yeah, please, please notify them.- Yes.- Okay.- And wouldn't that be exciting?- Yeah. You call just randomly- Just inherited, you just, you have a $10 million property on the ocean that somebody decides to leave you, you know?- Right. - Random, random inheritance I guess. Okay. So what happens if that person that you leave the property to and a lady Bede is no longer there?- Right. So it depends on how, if there was anybody else that was a remainder interest holder. So let's say if, if you just named James White as a remainder interest holder Yep. Then, and, and James passed away before you, and you never changed the deed, then you will know that you can go ahead and do probate because there's no way that James can take that property.- Okay. Okay. And then it would go through the normal, typical probate process.- Probate process. Now if it's James White and Olympia White Yeah. With rights of survivorship Yeah. As a remainder interest holder and James White passed away, then by rights of survivorship, Olympia White, would we get all of it? Get all of- It. Okay. That makes a lot of sense. Wow. So it's pretty, it's not super complex. It's just, you know, talk to an attorney, speak with an attorney, figure out what you, your, your key, key objectives are to accomplish.- Right.- And go from there.- It's an, it's an excellent tool. It's an affordable tool for a lot of people. It's obviously, it, it's not a Swiss Army knife. It's not gonna solve all, all the problems all at once. But it's a really great way to avoid probate for, for a lot of people.- Interesting. Okay, perfect. Well I guess we know what Lady Beard deeds are now. So if you want a Lady Bede, make sure you speak with an attorney in your jurisdiction and if you have any questions or comments, drop them below. That's a good wrap for show number four, Andrew. Congratulations.