Using a lady bird deed to avoid probate on real estate


Peter: Thank you for taking my call. Are you familiar with the term “A Lady bird Deed”?

Attorney Tom Olsen: I am, yes.

Peter: Okay, my question is this, if my mom passes a piece of property to me under a Lady bird Deed with me having the remainderman interest, do I still get the benefit of the stepped-up cost basis upon her death? 

Attorney Tom Olsen: Peter, that is a great [emphasis] question and thank you for asking it. The answer is yes. The Lady bird Deed is what Chris and I often refer to as an Enhanced Life Estate Deed. It is a beautiful tool for avoiding probate on real estate property. That deed states that as long as your mom is alive, it is her home do with that as she pleases, that upon her death it would automatically go to you, no headaches, no hassles, no probate. Your name is literally on this Lady bird Deed we’re talking about, Peter.  Now, when your mom passes away and you inherit it, you will get a stepped-up basis. Your basis for a capital gains tax purposes will be the value at the day to her death.

Peter: Okay, great. And the enhanced portion of it, from what I understand, the conveyance is revocable by the grantor? 

Attorney Tom Olsen: Peter, are you a lawyer or studying to be a lawyer, because you are right on today.

Peter: No, no, I’m not a lawyer or studying to be one. 

Attorney Tom Olsen: Well, Peter, there are two types of life estate deeds. There’s an Ordinary Life Estate Deed that if your mom signed it, she could not change her mind at a later date. There’s an Enhanced Life Estate Deed, or Lady bird Deed that we’re talking about today, that also avoids probate, but allows your mom to change her mind at a later date. Both of those get a stepped-up basis because at the end of the day you have no interest in that property until your mom has passed away. Does that make sense?

Peter: Yes. And one other quick question on that, when the quick claim deed is recorded, do you know whether or not there are documentary stamp taxes due on that since no monetary consideration exchange enhanced?

Attorney Tom Olsen: Yes, Peter, there are no doc stamps due on that. 

Peter: Okay, great. 

Chris Merrill: Another good question with that, Peter. Because that is usually the second most common question is, are there doc stamps? And the answer is no, not on that conveyance. Also to the fact that this Lady bird Deed is not available in every state, but we are really, really glad that we have this tool here in Florida. 

Attorney Tom Olsen: Yes, life estate deeds can be used in every state and Enhanced Life Estate Deed, also known as a Lady bird Deeds, only available in about 17 states, one of those is Florida.