During our estate planning and Medicaid office conferences, we frequently hear clients ask about Ladybird deeds. These type of “enhanced life estate” deeds let a grantor convey property to a grantee but reserve for the grantor’s life the “full possession, benefit and use” of said property where they can still mortgage, sell or collect the profits from the property.
We most commonly execute these special type of deeds in Medicaid cases where there is a single person applying for Medicaid. The reason for this is because once a single person is qualified for Medicaid and begins receiving services, at their death there can be a Medicaid Estate Recovery program (MERP) claim filed that the homestead of the decedent would be subject to (to the extent him or her received Medicaid services.) Without a Ladybird deed, the homestead is not protected and therefore available to such MERP claims. Further, as many clients are aware, Medicaid has a five-year “look back” for transfers and will assess a penalty (period of disqualification for Medicaid) if there have been any gifts or transfers made within the last 60 months. The Ladybird deed is an exception to this rule because it is only a transfer of a contingent interest that only comes about after the death of the grantor!
Some other important benefits of the Ladybird deed include:
- Homestead and all property tax exemptions (i.e., disabled owner or over age 65) are unaffected
- Ladybird Deeds can be on any real estate – not just homesteads
- Since the grantor’s estate would include the property due to the elements of grantor’s control, there would be a step up in basis to the value of the property as of the grantor’s date of death. In other words, there would be no capital gains tax on the appreciation from date of acquisition to the value as of the date of grantor’s death
- Since the grantor retains control of the real estate until death, it is not subject to gift taxes
- Creditors of the remainder beneficiary cannot make a successful claim against the property during the grantor’s life. Of course, if the grantor knows this, the grantor can change the remainder beneficiary; and
- Unlike Transfer on Death Deeds, Ladybird deeds can be signed by agent under a Power of Attorney