Step-Up in Basis for the Beneficiaries of Lady Bird Deeds

Estate planning is crucial for anyone looking to protect their assets and ensure a smooth transfer to their loved ones. In Florida, a common question arises regarding whether properties transferred through a Transfer on Death (TOD) deed or a Lady Bird Deed receive the step-up in basis, which can significantly impact capital gains taxes. In this article, we’ll explore how these deeds work and the benefits they offer as part of a Florida estate plan.

What Is a Lady Bird Deed?

A Lady Bird Deed, also known as Florida’s Enhanced Life Estate Deed, is a tool used in estate planning that allows property owners to transfer real estate upon their death while avoiding probate. It functions similarly to a Transfer on Death deed, which is recognized in other states. By using a Lady Bird Deed, you can name a beneficiary (known as the remainderman) who will automatically inherit the property upon your passing. This beneficiary can be an individual or your trust.

This method allows property owners to retain full ownership and control over their property during their lifetime, including the right to sell, refinance, or otherwise change the deed. Upon the owner’s death, the property transfers directly to the named beneficiary without going through the probate process, simplifying the estate administration.

How Does the Step-Up in Basis Work?

The step-up in basis is a crucial concept in estate planning and tax management, particularly for real estate. Basis refers to the property’s original purchase price, which is used to determine capital gains taxes if the property is later sold. A step-up in basis means that when the property is inherited, the basis is adjusted to reflect the market value of the property at the date of the original owner’s death.

Let’s consider an example to illustrate this:

• Bob buys a piece of real estate in Florida for $100,000. This purchase price becomes his basis.

• When Bob passes away, the property is valued at $300,000. If he has used a Lady Bird Deed to transfer the property to his son, the son’s basis is stepped up to $300,000, the value of the property at the time of Bob’s passing.

• If the son sells the property shortly after inheriting it for the same value ($300,000), there is no gain, and therefore, no capital gains tax is owed.

By using a Lady Bird Deed in your Florida estate plan, you not only avoid probate but also allow your beneficiaries to benefit from the step-up in basis, potentially saving them a significant amount in taxes.

The Advantages of Using a Lady Bird Deed in a Florida Estate Plan

There are several benefits to using a Lady Bird Deed as part of your estate planning strategy:

1. Probate Avoidance: By naming a remainderman, you ensure that your property transfers directly to the beneficiary without the need for probate, saving time and legal costs.

2. Step-Up in Basis: Beneficiaries receive the property at the date-of-death value, minimizing capital gains taxes if they decide to sell the property shortly after inheriting it.

3. Flexibility: As the property owner, you maintain full control over the asset during your lifetime. You can sell, mortgage, or change the deed without needing the remainderman’s approval.

4. Medicaid Planning: Lady Bird Deeds are also useful for Medicaid planning, as they allow the property to transfer outside of probate without being subject to estate recovery by Medicaid.

Important Considerations When Using a Lady Bird Deed

While a Lady Bird Deeds offers many benefits, it’s essential to work with an experienced Florida estate planning attorney to ensure it aligns with your overall estate plan. Here are a few key points to consider:

• Beneficiary Designations: Choosing the right remainderman is critical, as this person will automatically receive the property upon your passing. Ensure that your selection fits your estate planning goals and circumstances.

• Tax Implications for Other Assets: While a step-up in basis applies to real estate transferred via a Lady Bird Deed, other assets like retirement accounts may have different tax rules. It’s crucial to evaluate each asset with a professional.

• Coordination with Your Trust: If you have a trust, it may be beneficial to name the trust as the remainderman. This approach can provide additional asset protection and continuity in case your beneficiary is incapacitated.

The Benefits of Professional Guidance

If you’re considering a Lady Bird Deed or have questions about estate planning in Florida, consulting with a qualified Florida estate planning lawyer is vital. atCause Law Office focuses on creating comprehensive estate plans tailored to your unique needs, ensuring your assets are protected and your loved ones are provided for. Whether you need assistance with Lady Bird Deeds, asset protection, or Medicaid planning, our team is here to help.

Contact atCause Law Office today at 727-477-2255 to schedule a consultation with a trusted Florida estate planning attorney. With professional guidance and personalized solutions, you can secure your estate plan and peace of mind.

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