Vermont Bar Journal
Winter 2008 - #10.
Top Ten Pitfalls in Preparing Lady Bird Johnson Deeds
The Vermont Bar Journal #176, Volume 34, No. 4 WINTER 2008
"Top Ten" Pitfalls in Preparing Lady Bird Johnson Deedsby John A. Facey, III, Esq., John C. Newman, Esq. & Heather Cooper, Esq.Most of us have prepared, or at least reviewed, a deed from Mom and/or Dad that conveys their homestead to the children reserving an old-fashioned life estate. Recently however, life estate deeds have quite often been coupled with a "power of sale" and sometimes a "power to mortgage" and more recently even a "power to gift," all of which reserved powers are said in the deed to be reserved to be exercised at the discretion of the "grantor" parent or parents.
Having worked extensively with Lady Bird Johnson deeds (as we term them in our office; in other offices, they are called "Italian deeds" "power of sale" deeds, and so forth), we offer this list of what we perceive to be the "Top Ten"(fn1) pitfalls encountered in recommending, utilizing, preparing and living with these documents.(fn2) We could, but will not, bore you extensively with a discussion of what these deeds actually are. For example:
* are they present conveyances to the grantees transferring title to the grantees for all purposes subject to divestment in the event of the exercise of the power of sale by the grantors?; or * do they simply create a "right of reverter" in the grantees who have no present rights in the property, including the fee, unless and until the grantors die without exercising those rights?
There is no case law in Vermont on the subject; accordingly, we are simply pointing out the various issues that can arise every day when working with LBJ deeds.
Creating a Title Defect with a Power of Attorney.
An individual signing as agent for the grantor utilizing a durable power of attorney to convey the principal's residence into a life estate where the agent was one of the remaindermen may have made title to the property conveyed unmarketable under customary Vermont title standards. The Vermont Bar Association Title Standards Subcommittee has not addressed this issue specifically because use of a power of attorney to convey to oneself has been considered to be such a "no-no" that it has not been taken up. However, in practice, we have seen several situations where a child has utilized a power of attorney previously granted to the child by the parent to execute a power of sale deed. We believe that most title insurance companies will refuse to insure such conveyances. This issue should be anticipated when preparing powers of attorney running to a child from a parent when it is conceivable that the situation may dictate an LBJ deed later on when the parent is no longer capable.
Overpaying PTR Tax
There is an exemption from the requirement to pay a Vermont Property Transfer Tax for transfers to close family members, defined as "transfers between husband and wife, or parent and child, or child's...