Understanding Lady Bird Deeds and Homestead Exemptions in Florida

If you're navigating estate planning in Florida, you've likely come across terms like "Lady Bird deed" and "homestead exemption." These tools are powerful for protecting assets and minimizing taxes, but they come with specific rules—especially when it comes to inheritance. In this blog post, we'll break down what happens to a property transferred via a Lady Bird deed after the original owner's passing, focusing on the homestead exemption. Whether you're a beneficiary, a homeowner, or just planning ahead, this guide will clarify the process and help you make informed decisions.

We'll cover key topics like how Lady Bird deeds work, the impact on homestead exemptions, and steps to take if you've inherited property in Florida. If you're dealing with estate planning questions, our team at AtCause Law Office—the non-stuffy attorneys—is here to help. Let's dive in.

What Is a Lady Bird Deed in Florida?

A Lady Bird deed, also known as an enhanced life estate deed, is a popular estate planning tool in Florida. It allows the property owner (the grantor) to retain full control of the property during their lifetime while designating beneficiaries (remainder men) who will automatically inherit it upon the grantor's death.

Here's how it typically works:

• The grantor keeps the right to live in, sell, or mortgage the property without needing approval from the beneficiaries.

• Upon the grantor's passing, the property transfers directly to the beneficiaries, bypassing probate. This is similar to how a beneficiary designation on a bank account operates—seamless and efficient.

For example, if a parent like a mother-in-law executes a Lady Bird deed naming their child and spouse as beneficiaries, the property becomes theirs immediately after the parent's death. This avoids the time and cost of probate court, making it an attractive option for Florida residents.

Benefits of Using a Lady Bird Deed

• Probate Avoidance: Keeps the transfer out of court, saving time and money.

• Medicaid Planning: Helps protect assets while qualifying for benefits, as the grantor retains a life estate.

• Tax Advantages: Potential capital gains tax benefits for beneficiaries, depending on the situation.

However, while Lady Bird deeds simplify inheritance, they don't automatically carry over certain tax benefits—like the homestead exemption. That's where things can get tricky.

Homestead Exemption in Florida: The Basics

Florida's homestead exemption is a constitutional protection that offers significant tax relief for primary residences. It caps annual increases in assessed property value for tax purposes (typically at 3% or the Consumer Price Index, whichever is lower) and provides a $50,000 exemption on the taxable value.

To qualify:

• The property must be your primary residence.

• You must own it (or have a beneficial interest).

• Apply with your county property appraiser by March 1st of the year you want the exemption to start.

This exemption is a game-changer for long-term homeowners, as it prevents skyrocketing taxes due to rising property values. But what happens when the property changes hands via a Lady Bird deed?

Can You Inherit a Homestead Exemption Through a Lady Bird Deed?

One common question we hear here at atCause Law Office is: "If I inherit property via a Lady Bird deed, do I get to keep the original homestead exemption?" The short answer is no—homestead exemptions cannot be inherited from a parent or non-spouse.

Key Rules on Homestead Exemption Inheritance in Florida

• No Inheritance from Parents: If the grantor (e.g., your mother-in-law) had a homestead exemption on the property, it ends upon their death. Beneficiaries like children or in-laws must reapply for their own exemption.

• Spousal Exception: The only way to "inherit" an existing homestead exemption is if you're the surviving spouse. In that case, the cap on assessed value can continue seamlessly.

• Reassessment Upon Transfer: When the property transfers to you, the county will reassess its value for tax purposes. This means you won't benefit from the potentially lower assessed value the original owner had built up over years.

For instance, if your mother-in-law's property was assessed at a low value due to decades of homestead protection, that resets. The new assessment will reflect current market conditions, which could lead to higher initial taxes.

Steps to Apply for Your Own Homestead Exemption

If the inherited property becomes your primary residence, you can apply for a new homestead exemption. Here's how:

1. Confirm Eligibility: Ensure this is your main home and you don't claim homestead on another property.

2. Gather Documents: Provide proof of ownership (the Lady Bird deed will serve as this), residency (driver's license, voter ID), and any other required forms.

3. File with the County: Submit your application to the local property appraiser's office. Once approved, the exemption starts, and the tax cap begins from that point forward.

4. Timeline: The clock resets—your tax savings build over time, but you start fresh.

Pro Tip: Act quickly after inheritance to minimize any tax spikes. If you're unsure about the process, consulting a Florida estate planning attorney can ensure everything is handled correctly.

Common Misconceptions About Lady Bird Deeds and Taxes

Many people assume that since the Lady Bird Deed avoids probate, it also preserves all tax benefits. Unfortunately, that's not the case for homestead exemptions. Another myth is that children can "share" a parent's exemption—only spouses qualify for that continuity.

Additionally, while the deed helps with estate taxes and capital gains (by providing a step-up in basis), property taxes are a separate matter governed by county rules. Always check with your local appraiser for specifics, as rules can vary slightly by county.

Why Estate Planning Matters in Florida

Proper estate planning, including tools like Lady Bird deeds, can protect your loved ones from unnecessary stress and financial burdens. At atCause Law Office, we specialize in non-stuffy, approachable legal advice for Florida residents. Whether you're setting up a Lady Bird deed, navigating homestead exemptions, or handling probate, our team is here to guide you.

If you have questions about Lady Bird deeds, homestead exemptions, or any aspect of estate planning in Florida, don't hesitate to reach out. Contact us today for a Free consultation. Let's make sure your assets are protected the right way.

This post is for informational purposes only and not legal advice. Consult a qualified attorney for personalized guidance.