Can a Lady Bird Deed Shield My House from Tax Collectors?

Many Florida residents use non-probate transfers to pass their home on to a child or other heirs. For example, with an enhanced life estate or “Lady Bird” deed, the homeowner can reserve the right to continue living in their home until death, at which point the property automatically transfers to one or more “remaindermen” named in the deed. This is considered a valid non-probate transfer under Florida law.

Judge Finds IRS Lien Valid Despite Defendant’s Efforts to Protect Property

A federal judge in Tampa recently confronted the question of whether a property transferred via Lady Bird Deed is still subject to a federal tax lien filed against the original owner. In this particular case, the court ruled in favor of the Internal Revenue Service. More precisely, the judge concluded the Lady Bird Deed was simply a fraudulent transfer expressly meant to frustrate the government’s lawful attempt to collect a long past-due tax debt.

Indeed, this case, United States v. Voshelle, began more than 20 years ago. In 2002, the defendant filed late income tax returns for the years 1991 through 1996. The defendant was herself a professional tax preparer yet failed to file any returns for those years on-time. And when she filed her late returns, she claimed a large deduction for operating losses in her business dating back to the early 1990s.

Understandably, the IRS was suspicious. Following an audit, the IRS referred the defendant to the Justice Department for criminal prosecution. This led to a nine-count indictment on a variety of tax fraud and tax evasion charges. A federal court found the defendant guilty of all charges and sentenced her to 3 years in prison.

Even after serving her criminal sentence, there was still the matter of the back taxes. The IRS found the defendant still owed the government over $400,000. Meanwhile, in 2014 the defendant purchased a home in Spring Hill, Florida, titled solely in her name. A few months later, she signed a Lady Bird Deed reserving a life estate for herself and naming her son as the remainderman. In court, the defendant admitted she signed the deed “to frustrate the IRS’s efforts to collect her unpaid federal tax liabilities through the subject property.”

The IRS subsequently filed a Notice of Federal Tax Liens (NFTL) against the defendant and her life estate. The government then filed suit in Tampa federal court to enforce the lien. Before the judge, the defendant argued the NFTL was invalid since the IRS filed it after she transferred the Spring Hill property via the Lady Bird Deed. As the judge explained, however, once the IRS issued a final assessment of tax liability, a separate statutory lien automatically attached to all of the defendant’s real property. And while a statutory lien is generally not enforceable against the “purchaser” of a property prior to the filing of a NFTL, in this case there was no “purchase,” because the Lady Bird Deed transferred the property to the life estate without any consideration.

Contact a Florida Estate Litigation Attorney

While non-probate transfers are meant to try and avoid litigation over the subject property, that does not mean legal disputes cannot still arise. If you are involved in such a matter and need legal advice from an experienced Pompano Beach estate and trust litigation lawyer, contact the offices of Mark R. Manceri, P.A., today to schedule a consultation.

Source:

scholar.google.com/scholar_case?case=11950696837997967035