As reported in our Fall 2014 Newsletter, recent legislation prevents property tax assessment uncapping for most death-time residential real estate transfers to close family members. It now appears (although the jury is still out), however, that transfers at death via a Ladybird deed, even when to close family members, may not be exempt. In other words, while a transfer of a residence to a family member by joint ownership, distribution from a trust, or even from a probate estate will not affect property tax value, a transfer by Ladybird deed will uncap. For highly appreciated property, uncapping will result in higher property tax to the
Nonetheless, for the following reasons, we still recommend Ladybird deeds for principal residences:
- Ladybird deeds allow residential real estate owners to qualify for Medicaid and VA and prevent estate recovery against the home at death. The value of Medicaid benefits and the risk of estate recovery far exceed the cost of potentially increased property taxes after the death of the owner; and
- The liberal uncapping rules only benefit families that intend to keep their deceased family member’s home in the family. Since the vast majority of family homes are immediately sold at death, the new rules are of no benefit.
Ladybird deeds should not be used in the following circumstances:
- The principal residence has substantially appreciated, a family member intends to retain the home after the death of the current owner, and it is extremely unlikely that the current owner would ever need Medicaid. In those cases where the residence is highly appreciated, a family member intends to keep the home after death, and the current owner may need Medicaid, we can use a Lion-Cub Deed to prevent uncapping; and
- Ladybird deeds should not be used for highly appreciated vacation and second homes (Medicaid only exempts the applicant’s principal residence) that may stay in the family after the decedent’s death.
Action Required: Please call us if you own real estate other than your principal residence that is intended to stay in the family and was transferred to trust using a Ladybird deed.