What is a Lady Bird Deed and Are They Allowed in Rhode Island?
A “Lady Bird Deed“ (also known as an enhanced life estate deed) is a way to transfer property to someone else outside of probate while retaining a life estate in the property. But unlike a regular life estate, a Lady Bird deed gives you the power to retain control of the property during your life, including the right to use the property for profit or to sell the property.
THE GOOD: The 2014 Rhode Island budget addressed Lady Bird Deeds and the impacts on elder care planning techniques which rely on their use. The bill created a new statute (R.I. Gen. Laws § 34-4-2.1) which, for the first time, officially recognizes the use of these deeds which are distinguished from traditional life estate deeds in that the life estate holder also retains the power to sell, convey, mortgage or otherwise dispose of the property without the consent or participation of the remainder interest holders.
Traditionally, these deeds have sometimes been used to transfer real estate to family members while avoiding a transfer penalty for purposes of Medicaid eligibility.
THE BAD: However, the budget contains another new statute (R.I. Gen. Laws § 40-8-3.1) that effectively eliminates this planning opportunity by providing that a Medicaid applicant, who has transferred his or her primary residence using a “Lady Bird” or “Enhanced Life Estate” deed recorded after June 30, 2014, must re-convey the remainder interest to himself or herself prior to qualifying for Medicaid benefits. Upon re-conveyance of the remainder interest, the life estate holder will again own the entire property in fee simple, as if the transfer had never occurred.
So the good news is that Rhode Island finally recognizes Lady Bird Deeds, unfortunately, the primary purpose they were used for, namely Medicaid Planning, no longer works as the new law prohibits its usage for qualification purposes.