Lady Bird Deeds vs. Revocable Living Trusts: Which is Right for Florida Homeowners?

An Introduction to the Lady Bird Deeds vs Revocable Living Trusts for Florida Homeowners

For most Florida homeowners, the objective of their estate planning usually comes down to one important priority: Avoiding Probate.

It is no secret that probate in Florida can be an expensive and grueling process, often costing 3% to 5% of an estate’s value in attorney fees and taking months (sometimes even years) to resolve. However, Florida law provides two options that allow Floridians to avoid this process, particularly for real estate assets. They are the Florida Lady Bird Deed and the Revocable Living Trust.

The determining factors that usually influence which option is selected are the client’s budgetary constraints, the scope of the assets being covered, the need for incapacity planning etc. While in some instances the simpler and cheaper option of the Lady Bird Deed may be more appropriate, other times the robust protection of a Florida Revocable Living Trust is preferred.

This article examines the differences between the Florida Lady Bird Deed versus a Revocable Living Trust and which may be the better option in different scenarios.

What is a Florida Lady Bird Deed?

In Florida, a Lady Bird Deed (properly known as an Enhanced Life Estate Deed) is a special type of property deed used to transfer real estate to intended beneficiaries automatically upon the death of the owner without the need for probate.

These deeds differ from traditional life estate deeds in that it allows the owner to retain full control of the property during their lifetime without interference from the named beneficiaries. This allows the owner to sell, refinance, or rent the subject property without the need for authorization from the beneficiaries, all while retaining the advantage of probate avoidance.

The Advantages of a Florida Lady Bird Deed

• Cost-Effective: The Lady Bird Deed is significantly cheaper to prepare than a trust, thereby making it appealing to those with simpler estates and a more restrictive budget.
• Retained Control: Owners can change their minds at any time. Not only can they change beneficiaries, but they can also sell or refinance the property without any named beneficiary having a claim to the proceeds.
• Medicaid Friendly: In Florida, since a Lady Bird Deed is not considered a “transfer of assets”, it usually protects a homestead residence from Medicaid Estate Recovery after the death of the owner.
• Step-Up in Basis: When a beneficiary inherits property through a Lady Bird Deed in Florida, they receive a “step-up” in tax basis to the property’s value at the death of the owner. This step-up potentially eliminates capital gains taxes if the property is sold immediately.

Disadvantages of a Lady Bird Deed

• Incapacity Gap: Lady Bird deeds do not assist in cases of incapacity, as interest only transfers to a beneficiary at the death of the owner. In the case of incapacity, a durable power of attorney would be more useful.
• Rigid Distribution: In Florida, Lady Bird Deeds result in the outright distribution of property, so it would not be a good option for those leaving real estate to minors, those with special needs, etc.

What is a Revocable Living Trust?

In Florida, a Revocable Living Trust (RLT) is a comprehensive legal agreement where the creator of the trust (known as the Grantor) transfers assets, such as a residence, bank accounts, business entity interests, into the name of the revocable living trust.

This option allows the owner to retain full control of their real estate asset during their lifetime, allowing them to sell, refinance, or rent it as they wish without interference by beneficiaries. The main difference between these two options is the flexibility and additional safety net provided by the trust.

The Advantages of a Revocable Living Trust

• Total Incapacity Protection: Revocable Living Trusts in Florida allow for comprehensive planning in the case of incapacity, thereby permitting successor trustees to manage the real property of the owner without the need for court intervention.
• Beneficiary Protection: The Florida Revocable Living Trust also allows for far more flexibility to protect beneficiaries. Oftentimes, outrightly inheriting property may leave it susceptible to creditors or spousal claims during a divorce.
• Avoids Probate for ALL Assets: While deeds work well for real estate, a Revocable Living Trust protects all types of assets, such as financial accounts, business assets, etc., from having to go through the probate process.
• Privacy: As opposed to a Will that is made public record during the probate process or a Lady Bird Deed that is recorded in the county in which the subject property lies, a Revocable Living Trust is meant to remain confidential.

The Disadvantages of a Revocable Living Trust

• Higher Upfront Cost: With greater protection and flexibility comes higher initial costs to draft and implement a Revocable Living Trust.
• Funding Requirement: In Florida, Revocable Living Trusts are only effective probate avoidance tools if they are adequately funded. Failing to effectively transfer a real estate asset (or any asset, for that matter) to a trust will result in the need for probate.

Deciding Between the Two Options:

When Florida homeowners are deciding between a Lady Bird Deed and a Revocable Living Trust, several key factors come into play. Both tools successfully avoid probate for real estate, but they serve different long-term purposes.

Here are the main factors considered when choosing between the two:

1. Scope of Assets Covered

A Lady Bird Deed applies to a specific piece of real estate named in the document and will not protect financial accounts, personal property or business interests from probate.However, a Revocable Living Trust is a comprehensive document that can consolidate all a person’s assets, ensuring the entire estate bypasses the probate process.​

2. Cost and Complexity

A Lady Bird Deed is generally a straightforward, single-document solution that is cost-effective to implement. Conversely, a Revocable Living Trust requires a higher upfront investment to draft the comprehensive legal agreement, as well as the ongoing effort required to properly “fund” the trust by titling assets into the trust’s name.

3. Beneficiary Protection and Control

The Florida Lady Bird Deed distributes the real estate property outrightly to the named beneficiaries automatically upon the death of the owner. This results in the property being immediately subjected to claims from the beneficiary’s creditors, divorcing spouses, or their own financial mismanagement. A Revocable Living Trust, on the other hand, allows the grantor to establish rules for how and when beneficiaries receive their inheritance. This keeps the assets protected in the trust for minors, individuals with special needs, etc.

4. Incapacity Planning

In cases in which a property owner suffers a stroke or develops dementia, a Lady Bird Deed provides no help because it only transfers ownership at death of the owner. Further documentation would be needed.However, a Revocable Living Trust has built-in incapacity protection allowing a successor trustee to take charge if the grantor cannot manage their own affairs.

5. Contingency Planning (Predeceased Beneficiaries)

If a named beneficiary on a Lady Bird Deed dies before the property owner, and the owner does not update the deed or loses capacity before being able to do so, the property may likely end up back in probate depending. A Revocable Living Trust is specifically designed to handle complex, multi-generational contingencies, providing a more comprehensive safety net.

6. Medicaid Planning and Estate Recovery

For elderly clients who may be concerned about long-term care costs, the Lady Bird Deed is a commonly used tool in Florida.  Given that creating a Lady Bird Deed is not considered a “transfer of assets” for purposes of Medicaid eligibility, it is used to protect the home from Medicaid estate recovery after an owner passes away. While a trust can also be used for this purpose, transferring a homestead into a standard revocable trust may complicate Medicaid exemption status if not drafted perfectly.​

7. Minor Beneficiaries and Florida Homestead Restrictions

When an owner has minor children, leaving a homestead property via a Lady Bird Deed outright to them will usually trigger a costly, court-supervised guardianship of the property until the minor becomes an adult. Further, if an owner is married at death and has a minor child, Florida’s strict constitutional homestead laws invalidate any devise of the homestead, regardless of whether a deed or trust is used.

Quick Reference Summary: Lady Bird Deed vs. Revocable Trust

The Verdict: Which option is better?

Choose the Lady Bird Deed if:

• The only major asset is a primary residence (homestead).
• The intended beneficiaries are responsible adults with no creditor/marital issues.
• The owner needs the most budget-friendly way to avoid probate for their principal residence. 
• This is already a valid Durable Power of Attorney for incapacity in place.

Choose the Revocable Living Trust if:

• There are multiple properties (especially out-of-state) and assets.
• There are minor children or beneficiaries who cannot manage inheriting a lump sum outrightly
• The owner seeks privacy and incapacity protection.
• The owner has significant assets outside of real estate, such as financial investments, business interests, etc.

Frequently Asked Questions

Conclusions on Lady Bird Deeds vs. Revocable Living Trusts

Choosing between a Lady Bird Deed and a Revocable Living Trust in Florida isnot just about cost. It is also about maintaining control and maximizing available protection.

If the primary goal is a simple and cost-effective transfer of the homestead to adult heirs, then the Lady Bird Deed may be sufficient to avoid probate. However, for those seeking more comprehensive planning that takes into consideration a variety of assets, beneficiaries, and intentions, the Revocable Living Trust is the better option.

At ASR Law Firm, we reject the “one-size-fits-all” estate plans. Every client’s needs, family dynamic, and asset portfolio are thoroughly analyzed to recommend the tools that best achieve their goals.

Contact us today to schedule a complimentary consultation and learn more about how we may help you with your estate planning needs.