01 Aug Estate and Elder Law Planning Using Lady Bird Deeds – Part 3 The Fund’s Position
The Funds’ position regarding judgments against the life tenant or remainderman, death of the remainderman prior to the life tenant, homestead, and elective share are discussed below.
Judgments recorded against the life tenant in the county where the property is located will be insured depending on the circumstances. If a lawsuit has been filed prior to the creation of the Lady Bird Deed and a subsequent judgment is recorded, the judgment must be cleared in all cases. If the lawsuit and judgment come after the creation of the Lady Bird Deed, then title will be insured after the death of the life tenant for a purchaser from the remainderman. However, if the life tenant conveys the property to a bonafide purchaser for value, the judgment must still be satisfied. If a judgment is recorded against the remainderman, and the life tenant reconveys the remainder interest to another party, the judgment may be disregarded by The Fund on a case by case basis. Issues of fraudulent conveyance will be considered before any decision is made. The open issue here is whether or not the judgment creditor acquires a greater interest than the remainderman. As far as Federal Tax Liens are concerned, in absence of any precedent, all Federal Tax Liens recorded in the county where the property is located against the remainderman must be cleared, and a release by the IRS will be required prior to insuring title. See United States v. Craft, 122 S. CT. 1414 (2002), illustrating how aggressive the IRS can be to enforce their liens.
If the remainderman dies before the life tenant, probate will be required if it is determined that the remainderman had a vested interest as opposed to being a contingent remainder. Since there is no specific authority as to which type of remainder interest is created by a Lady Bird Deed, the Fund’s position is that it is a vested remainder, thus subjecting the heirs and/or devisees of the deceased remainderman to probate proceedings. However, a Fund Underwriting Attorney has opined that since the life tenant can convey the property during his or her lifetime without joinder of the remainderman, then the same should be true even with the prior death of the remainderman. Assuming that this becomes the Fund’s position, probate of the remainderman’s estate will still be necessary if he or she predeceases the life tenant and the life tenant dies without first re-conveying the property. If the remainder interest is held by two or more persons, one of whom predeceases the life tenant, probate will be required unless the remainder interest is held as joint tenants with right of survivorship.
The use of a Lady Bird Deed with homestead property creates a problem when the owner is survived by a spouse or minor child. Such property can not be devised to another party, either directly or indirectly. Art X, Sec. 4 (c), Fla. Const. (1968 as amended), In re Estate of Johnson, 397 So. 2d 970 (Fla. 4th DCA 1981). Since there has been no case law determining whether the remainderman’s interest is vested or contingent, the possibility of a court determining that the remainderman had a contingent interest, thus being a devise at death in violation of the Florida Constitution, prevents The Fund from insuring title.
For persons dying after October 1, 2001, F.S. 732.2075(2)(a) (1999) of the Elective Share Statute expands the elective share to include property held in revocable trusts. Since the remainderman’s interest in a Lady Bird Deed can be revoked by the life tenant, the property would in all likelihood be considered as part of the elective share. The Fund will not insure title in this case without a release or determination of the elective share.
For more help with Lady Bird Deeds or Elder Law planning call our Miami office at (305) 274-0955.