A lady bird deed ("LBD") is a type of deed sometimes used to transfer a home to beneficiaries, to be effective upon death of the original owner. It is also called an Enhanced Life Estate Deed because it is a unique type of life estate deed.
Life estate deeds have been used for centuries. A life estate deed consists of two interests - the life estate interest ("LEI") and the remainder interest ("RI"). It is more complex than a TOD designation on an account, because both parties own an interest in the real estate. With a traditional life estate deed ("TLED"), the LEI holder and the RI holder(s) would both have to sign a deed or mortgage.
The difference between a LBD and TLED is simply that the LEI holder in a LBD has the power to sell or mortgage the property, without the RI holder having to sign. It was created because Medicaid considered a TLED a transfer of assets, but, since the LEI Holder retains certain rights, Medicaid does not consider a LBD to be a transfer of assets.
We hesitate to prepare these deeds in every circumstance. They are safer than joint ownership, and safer than TEIDs, but still, there are concerns: (1) if the RI holder does not pay an obligation to the IRS, the IRS will pursue the RI holder's interest in the real property; (2) if the original owner changes his or her mind, there is no way to cancel the deed or change the RI holder; (3) if the RI holder dies first, the interest passes through probate to the heirs or beneficiaries of the RI holder; (4) even though the LBD states that the LEI holder can sign a mortgage alone, lenders typically do not approve any deed about life estates, even if all parties sign.
We prefer not to use these deeds unless the client is near death and when the client has no assets other than the home that might require probate.