As you plan for the future and consider how to pass on your legacy, you’re likely weighing your options for transferring property to loved ones. One tool that may have crossed your radar is a lady bird deed.
In Florida, this deed can be a powerful way to ensure that your property ends up in the right hands while giving you peace of mind and flexibility. But like any legal strategy, it has its pros and cons. This short blog lists the benefits and drawbacks of using this tool to help you make an informed decision.
The advantages and disadvantage of using a lady bird deed
The most obvious advantage of this deed is that it removes a particular property from your estate, saving it from probate in the event of your death. However, there are also crucial benefits to using a lady bird deed outside of probate.
- Helps avoid federal gift tax: When gifting a property to a relative, you may have to file a gift tax return and even pay a gift tax. However, you can avoid this tax through a lady bird deed since the transfer of ownership will only occur after you pass on.
- Maintains Medicaid eligibility: Any property you transfer five years before receiving Medicaid benefits still counts as yours. This may increase the value of your assets, which may lead to disqualification for full Medicaid benefits. Fortunately, lady bird deeds are exempt from this rule, which means the property’s value won’t affect your eligibility.
- Protects property from Medicaid repayment claim: After your death, the state can claim some of your assets to recover Medicaid costs for long-term care. However, a property under a lady bird deed doesn’t count as part of your estate, so a court may not claim it for repayment.
Unfortunately, there is also a disadvantage to using a lady bird deed. After you pass on and the property transfers to your beneficiary, the state may increase its taxable value. As a result, your loved one may have to face higher property taxes.
Manage your estate correctly
Ultimately, the right approach to managing your estate will depend on your circumstances and priorities. By understanding these crucial elements, you can make a more informed decision.
