Using Enhanced Life Estate Deeds to Pass Real Property to Charity: Opportunities, Pitfalls, and Best Practices

by John L. Dickhaus, J.D.

Enhanced life estate deeds, often referred to as “Lady Bird Deeds,” are a unique estate planning tool that allows real property owners to retain control over the property during their lifetime while designating a charity as the remainder beneficiary. If utilized correctly, real property will pass directly to the remainder beneficiary upon the death of the owner, thus avoiding probate. This approach can provide significant benefits for both donors and charitable organizations, but it also comes with potential pitfalls and legal nuances, particularly in states like Florida where homestead laws play a critical role. This article will explore structuring philanthropy centered around Lady Bird Deeds to deliver desirable outcomes for both donors and charities, alike. 

What Are Enhanced Life Estate Deeds?

A creation of Florida’s common law,[1] an enhanced life estate deed allows a property owner (grantor) to retain full control over the property during their lifetime, including the right to sell, mortgage, or otherwise dispose of the property, without the consent of the remainder beneficiary. However, upon the grantor’s death, the property automatically transfers to the designated remainder beneficiary (whether a natural person or charity), bypassing probate. This streamlined transfer process can save time and costs for both the donor’s estate and the charity.

From a consumer standpoint, the primary residence remains the largest asset category on the American family household’s balance sheet.[2] By extension, the utility of a Lady Bird Deed allows the average American family to pass their most significant asset to their heirs without incurring the costs associated with probate administration. From a charitable giving perspective, this tool can be particularly appealing because it allows donors to make a significant philanthropic impact (often stretching into the six and seven figure range depending on the property’s location) while retaining the ability to use or manage the property during their lifetime. Additionally, the charity benefits from receiving the property without the delays and expenses associated with the probate process. This can create opportunities for charities in the coming decades as more and more individuals die childless[3] or choose to make philanthropy a foundation of their estate plans.[4] 

Potential Pitfalls for Charities Accepting Enhanced Life Estate Deeds

While enhanced life estate deeds offer clear advantages to donors and charities alike, charities must exercise caution and conduct thorough due diligence before accepting such gifts. Key pitfalls include:

1. Environmental and Structural Issues: Any parcel of real property may have environmental liabilities (e.g., contamination) or structural issues that could impose significant costs on the charity once it takes ownership. This is of particular concern in states like Florida since under a Lady Bird Deed, title to real property passes immediately to the remainder beneficiary without any requirement to alert the charity of the death of the grantor donor. Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA),[5] also known as the Superfund Act, property owners, including charities, can be held liable for environmental cleanup costs.
2. Encumbrances and Liens: The property may be subject to mortgages, liens, or other encumbrances that could complicate the transfer or reduce the property’s value. Without a notice requirement alerting the charity to their new ownership of the parcel of real property, this can create significant liability for the inheriting charity. A preliminary title report and opinion should be obtained to confirm the status of any encumbrances when the charity learns that it is or will be in the chain of title for the property.
3. Management and Holding Costs: Charities must be prepared to manage the property during the holding period prior to selling the property. This may involve costs for maintenance, insurance, and taxes. These costs can be particularly burdensome if the property is not immediately marketable.
4. The Problem of Tenants in Common Ownership: Realizing the level of impact that can be made at multiple charities, prospective donors can be tempted to list multiple charities as the remainder beneficiaries of a Lady Bird Deed. By utilizing this approach, all charities listed as remaindermen become tenants in common owners of the property immediately upon the death of the grantor. This creates significant challenges in the form of required shared decision making on all major decisions associated with the property (such as if and when to sell the property); shared financial responsibility over the property when it comes to maintenance, taxes, and insurance; and valuation and liquidity issues.[6]     
5. Florida Homestead Law Nuances: In Florida, homestead laws provide unique protections for primary residences, which can complicate the use of enhanced life estate deeds. For example, Florida law restricts the transfer of homestead property if the owner is survived by a spouse or minor children.[7] Charities must ensure that the donor’s use of an enhanced life estate deed complies with these restrictions to avoid legal challenges.

Best Practices for Charities and Advisors

Advisors play a key role in assisting clients in executing Lady Bird Deeds that will benefit charities. To mitigate risks and maximize the benefits of accepting enhanced life estate deeds, advisors and charities should consider the following best practices:

1. Developing Formal Policies and Procedures: Charities should establish written policies for evaluating and accepting real estate gifts. These policies should outline the due diligence process, including inspections, appraisals, and title examinations. When advisors learn that their client wants to consider a gift of real estate to charity, they should encourage their client to contact the charity directly or work on their client’s behalf to make sure their client is aware of the charity’s policies and procedures for accepting gifts of real estate.   
2. Conduct Thorough Due Diligence: When an advisor learns of a potential gift of real estate to a charity through a Lady Bird Deed, they should affirmatively contact the charity (after obtaining their client’s consent) so that the charity can conduct due diligence on the property. After being alerted, a charity should conduct environmental, structural, and title inspections to uncover any potential issues. This step is critical to avoid unexpected liabilities that may arise when a charity is listed as a remainderman on a Lady Bird Deed without the charity’s prior knowledge.
3. Engage Additional Legal and Financial Advisors: While this article deals primarily with real estate located in Florida, many states have deeds like Lady Bird Deeds that will transfer real estate to beneficiaries while bypassing probate. Advisors should consider working with attorneys and financial advisors familiar with local laws (ex. Florida’s homestead laws), to ensure compliance and address any legal or tax implications that may arise in each jurisdiction.
4. Communicate Clearly with Donors: Charities should develop and use an enhanced life estate agreement (or similar memorandum of understanding) to address potential “what if” scenarios, such as the donor moving to a nursing home or needing to sell the property during their lifetime. Advisors should encourage their client’s cooperation and active participation in executing these agreements so that expectations are clearly communicated and outcomes aligned with the client’s philanthropic vision are achieved. Clear communication can increase donor confidence and reduce future misunderstandings. This document should also outline a proactive notice process so that the charity is notified when they have inherited the property and entered the chain of title. The donor should also be educated by their advisor about the need to keep the document accessible to their personal representative/next of kin and that the document will be kept with their other estate planning documents.

Conclusion

Enhanced life estate deeds offer a powerful way for donors to support their favorite charities while retaining control over their property during their lifetime. However, these gifts require careful planning and due diligence to navigate potential pitfalls, including environmental liabilities, encumbrances, and Florida’s homestead law restrictions. By adopting best practices and working closely with legal and financial advisors, charities can unlock the full potential of these gifts while minimizing risks.

[1] See generally Oglesby v. Lee, 73 So. 840 (Fla. 1917) and Aetna Ins. Co. v. La Gasse, 223 So.2d 727 (Fla. 1969).

[2] See Aditya Aladangady, Jesse Bricker, Andrew C. Chang, Sarena Goodman, Jacob Krimmel, Kevin B. Moore, Sarah Reber, Alice Henriques Volz, and Richard A. Windle, Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances from the 2022 Survey of Consumer Finances, Washington Board of Governors of the Federal Reserve System (https://www.federalreserve.gov/publications/files/scf23.pdf).

[3] Phillip L. Swagel, The Demographic Outlook: 2024 to 2054, Congressional Budget Office (Jan. 2024), https://www.cbo.gov/publication/59899#:~:text=After%20peaking%20at%202.12%20in,when%20the%20projections%20were%20made; See also Rachel Minkin, Juliana Menasce Horowitz, & Carolina Aragao, The Experiences of U.S. Adults Who Don’t Have Children, Pew Research Center (Jul. 25, 2024),

[4] Russell James, Inside the Mind of the Bequest Donor 297 (Create Space Independent Publishing Platform, 2013)(exploring a study of Australian wills showing that testators without surviving children are ten times more likely to make charitable bequests from their estate).

[5] 42 U.S.C. § 9601 (1980) et seq.

[6] See Joseph M. Percopo, The Impact of Co-Ownership on Florida Homestead, Fla. Bar Journal (Vol. 86, No. 5 May 2012)(discussing perils and pitfalls that can be associated with owning Florida homestead real property as tenants in common).

[7] See Rohan Kelley, Kelley’s Homestead Paradigm at https://floridafellowsinstitute.org/wp-content/uploads/2022/02/Kelley-Homestead-Paradigm.pdf.