Ladybird Deeds in North Carolina

Ladybird deeds or enhanced life estate deeds, are a special type of life estate deed that reserves certain powers in the grantor. They are intended to allow you to reserve the right to control the property during your lifetime, and allow the property to pass to your heirs outside probate upon your death. One of the reasons to use a ladybird deed is to keep the property from being subject to creditor’s claims, including Medicaid estate recovery, after your death.

If circumstances require you to seek public assistance for long-term care, your primary residence will not keep you from qualifying for assistance. However, it may still be subject to estate recovery after your death. If you receive such assistance, it is likely that your estate will be liable to the State of North Carolina for the amounts paid by the State for assistance. There are several exceptions, but it is not usually possible to know at the time of qualification for benefits whether or not those exceptions will apply at your death.

Ladybird deeds are specifically recognized in several states, but not in North Carolina. However, they are recognized in the common law. They are essentially a conveyance that reserves a power of appointment. The right to grant a power of appointment in a deed existed under common law of England. North Carolina has adopted the common law of England in a statute that was enacted in 1778. I know of no cases or statutes that would invalidate the use of enhanced life estate deeds. However, they are not effective in some states. So it is possible that at some point they will not be effective in North Carolina.

There are several issues that you should consider before using a Ladybird deed. One concern is the possibility that a judgment against the holder of the remainder interest prior to your death could become a lien on the property, preventing you from exercising the reserved powers. Even if that is not true of “normal” judgments, IRS liens against any party will most likely be considered as attaching to the property.

A second issue to consider is what happens if a remainderman dies before you. Since you may revoke the interest of the remainderman at any time, some argue that the remainderman has no interest until your death, and therefore, the remainder interest in the property does not go to the probate estate of the predeceasing remainderman. However, I believe that the better analysis is that the remainderman does have an interest, but it is subject to divestment by you. Therefore, the remainder interest can be inherited. No matter how you analyze this, if your beneficiary dies before you, there is a title problem that needs to be fixed.

Another concern is that because you retain so many powers, this could be considered a part of your estate at your death. To my knowledge, that has not happened at this point.

Using a ladybird deed is not without risk. There are often other ways to handle your real estate.. Every situation is different. But ladybird deeds are one of many tools that may fit your situation.