Did you know that there is a special type of deed that can be used to: avoid probate, maintain control of the property during your lifetime, not affect Medicaid eligibility, potentially avoid federal gift taxes, maintain your homestead protection, and allows your beneficiaries to still claim a step-up in cost basis for capital gains taxes purposes. Sound too good to be true? Be sure to listen to this episode to find out more and to learn about potential limitations of this special Enhanced Life Estate Deed and whether it might be right for you.
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Estate Planning and the Lady Bird Deed
We’re here to discuss an important topic related to estate planning – the Lady Bird Deed. A Lady Bird Deed is a specialized type of property deed sometimes also called a “Enhanced Life Estate Deed.” It allows property owners to retain control of their property during their lifetime while designating a beneficiary who will inherit the property upon their passing without having to go through probate. The beneficiary is sometimes also referred to as the remainder beneficiary or remainderman (or remaindermen if there are multiple beneficiaries).
The term “Lady Bird Deed” originated in Texas when President Lyndon B. Johnson used it to transfer property to his wife, Claudia Lady Bird Johnson. The nickname stuck, and it’s now a valuable tool for transferring ownership of mineral rights and real property while retaining control during your lifetime.
Practical Application of Lady Bird Deeds
So, how can you use a Lady Bird Deed? It can be an excellent way to ensure a smooth transition of your property to chosen heirs without going through probate. You maintain control of the property throughout your lifetime, unlike with traditional life estate deeds. This deed allows you to skip the probate process and clearly defines your heirs.
Benefits of Lady Bird Deeds
Some notable benefits of Lady Bird Deeds include avoiding probate, maintaining property rights throughout your life, not affecting Medicaid eligibility, possibly avoiding federal gift taxes, preserving homestead protection for property taxes, while still allowing beneficiaries to claim a step-up in cost basis, should they ever sell the inherited mineral rights which can significantly impact capital gains tax.
Drawbacks of Lady Bird Deeds
Lady Bird Deeds are not without a few drawbacks. They can be more challenging to alter than a simple will, and they are only recognized in a few states. When multiple beneficiaries are involved, disagreements can become problematic, as there’s limited recourse compared to a trust agreement. Also, if the default beneficiary predeceases you, transferring ownership can be complicated but this can be easily remedied as long as you update the deed and make sure it is recorded with the county. So like other estate planning tools, you need to make sure it stays up-to-date and accurately reflects your wishes.
Alternatives and Conclusion
While Lady Bird Deeds offer unique advantages, if it is available in your state, it’s essential to consult with a qualified attorney to explore if this tool suits your needs. If it is not available in your state, then there are alternatives like revocable living trusts, other life estate deeds, or even traditional wills that might also be an option. If the default beneficiary for your mineral rights is you spouse then it might make more sense to take joint tenancy with the right of survivorship. Keep in mind the implications of subdividing mineral assets too much, as it can affect their overall value in the long run. Estate planning is a complex field, so it’s crucial to seek professional advice to make sure your plans meet your needs.
Resources Mentioned in this Episode
- MRP 67: Estate Planning and Mineral Rights
- MRP 85: Probate and Marketable Title with Attorney Richard Winblad
- MRP 203: How to Navigate Inheritance Issues with Minerals and Royalties
- What is a Lady Bird Deed in Texas? Benefits / Disadvantages
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