The term “Ladybird deed,” also known as an enhanced life estate deed, was popularized in Florida in the 1980s. The name comes from Florida elder law attorney Jerome Ira Solkoff, who used the name of former First Lady “Lady Bird” Johnson in his educational materials to illustrate the mechanics of the deed. The name has since been attached to the concept, despite the fact that President Johnson likely never used a Ladybird deed to transfer property to his wife.
A Ladybird deed is an estate planning tool that allows a property owner to transfer ownership of the property to another person while retaining the right to hold, occupy, and use the property as if the transferor were still the sole fee simple owner. In contrast, with a traditional deed that reserves a life estate, the property interest is split between a life tenant and a remainder person. While the life tenant retains the sole possessory interest in the real property, they have liability to the remainder person(s) for committing acts that diminish the property’s value, known as waste. Additionally, the traditional life tenant cannot sell, refinance, or otherwise transfer a fee simple interest in the real estate without the joinder of the remainder persons. Upon a sale, the proceeds are divided based on calculations using the mortality tables and present value of annuities in N.C.G.S. §§ 8-46 and 8-47.
On the other hand, a Ladybird deed reserves an enhanced life estate that includes the right to sell, commit waste, mortgage, lease, and otherwise dispose of the property without the consent of the remainder person(s). The remainder person(s), or designated recipients, have no rights in the property until the death of the enhanced life tenant. Furthermore, the Ladybird deed sometimes provides the grantor with the flexibility to revoke, amend, or change the designation of the remainder person(s) during their lifetime, whereas a traditional life tenant cannot change or amend the remainder interest once granted. This means that the grantor maintains complete control over the property and can unilaterally terminate the grantee’s interest if they choose to sell or otherwise convey the property. The concept of a Ladybird deed is akin to a transfer-on-death deed, which is recognized by some states but not North Carolina. Ladybird deeds are often used in Medicaid planning as a way to remove home site property from Medicaid estate recovery claims, as theoretically, probate is not required for a Ladybird deed.
There are several key distinctions between a Ladybird deed and a Medicaid deed. First, a Ladybird deed is not an effective Medicaid planning tool for non-home site property because it does not make the property non-countable. Second, a Ladybird Deed is sometimes preferred over a Medicaid deed for protecting home site property because no true interest in the property is conveyed, so the risks outlined in the previous blog on Medicaid deeds, such as the joinder of the grantees and their spouses, do not apply. However, the biggest downside to Ladybird deeds—and the reason why I personally never use them in my practice—is that there is no statutory or common law recognition of Ladybird deeds in North Carolina. Accordingly, although they have conceptual validity in the law, there is no framework under North Carolina law to reference their implementation and effectiveness. This is highlighted by the fact that many, if not most, title insurance companies require the grantees of a Ladybird deed to sign off on a sale, despite the contrary language in the deed.
In summary, Ladybird deeds are a popular but often misunderstood legal concept. A Medicaid deed is a distinct concept and is a much more effective method for preserving Medicaid qualification in a skilled nursing facility and protecting real property from Medicaid estate recovery.