Estate Planning with a Michigan Lady Bird Deed

someone holding a small model home in their hands and passing it to someone else - lady bird deed estate planning concept

A lady bird deed, also called an enhanced life estate deed, is a popular estate planning tool that avoids probate and accomplishes other estate planning objectives. It is a special method of automatically transferring your home and other real property after death. Whether it is a good option for your estate planning depends entirely on your personal circumstances. The following are the basics of how a lady bird deed works in Michigan and important considerations when using one in your estate plan.

How Does a Lady Bird Deed Work?

A lady bird deed can be considered as a deed with a designated beneficiary with the added benefit of allowing you, as the person transferring the property (the grantor), to retain total control over the property during your lifetime. Your control over the property includes the unrestricted power to “sell, transfer, gift, mortgage, lease, encumber or otherwise convey or dispose of all or any portion of the property” in any manner that you want. However, if at the time of your death, you still own the property and it is titled in your name, the property automatically passes directly to the person or persons designated as a beneficiary in the lady bird deed. Lady bird deed transfers can be used by individuals or married couples as a cost-effective estate planning tool for transfer of their home or other real estate. Multiple beneficiaries can also be designated in a lady bird deed, however that requires addressing additional legal considerations about the transfer of the property.

Benefits of a Michigan Lady Bird Deed

Avoids Probate of Real Estate

Avoiding probate is a primary concern of many individuals and married couples. In a lady bird deed your home and other real estate automatically transfers to a designated beneficiary in the deed at death so you avoid probate administration which is costly and time consuming. Another benefit of avoiding probate is that the details of the transferred property do not become part of the probate administration records which are open to the public.

Life Time Control of the Property

A lady bird deed also allows a person or a married couple (the grantor) in the deed to keep full ownership and control of the property, including the ability to sell the property at any time and keep the sale proceeds. In addition, while the grantor is alive, the property has some protection from creditors of the named beneficiary in the deed and for a married couple, the property remains as jointly owned marital property so that the creditors of one spouse cannot reach the property

Tax Benefits

A properly-drafted lady bird deed may provide tax benefits for the beneficiary in several different ways. First, after the grantor’s death, when the property transfers to the beneficiary, the tax basis of the property increases to the value at death. This step up in tax basis can save a substantial amount of capital gains tax.

No Uncapping of Property Taxes

A lady bird deed does not uncap your property tax so there will be no increase to your property taxes. A lady bird transfer at death can also avoid property tax increases for certain designated beneficiaries who are family members if the transfer is made in accordance with the exemption provisions in Michigan law.

Avoids Medicaid Recovery on Real Estate

Under the current Medicaid Recovery Law, the State of Michigan is able to obtain reimbursement of past Medicaid payments from a recipient’s assets in their probate estate. Because a lady bird deed avoids real estate from having to go through probate administration, there are no Medicaid reimbursement claims able to be made on the property. For individuals who are planning for Medicaid coverage of medical or long-term care, a lady bird deed provides benefits and protections for the transfer of their home to family members and loved ones.

Disadvantages of a Lady Bird Deed

In some situations, a lady bird deed is not the best or most flexible option for addressing concerns that arise in transferring real estate after death. Using a lady bird deed becomes more complicated and may not be a good option if you have minor children or want to designate multiple beneficiaries in the deed.

A lady bird deed does not protect beneficiaries who have financial management problems, substance abuse issues or potential creditor problems when the beneficiary receives the property outright after the grantor’s death. If protecting your family property from claims of divorced or divorcing spouses of children is a concern, a lady bird deed with family members named as beneficiaries may not be the best option.

Finally, if a beneficiary receives needs-based government benefits, such as Medicaid, the beneficiary’s eligibility for the benefit may be adversely affected if they inherit property outright through a lady bird deed.

Should You Consider a Lady Bird Deed in Your Estate Plan?

Before you decide that a lady bird transfer is right for you, it is important to consult with an estate planning attorney with real estate experience. A lady bird deed can be designed in several different ways, depending on your circumstances. In addition, a lady bird transfer is not necessarily a complete estate plan. Other documents, including a will or a revocable living trust, can address all aspects of your estate planning needs. For example, in many estate plans the lady bird deed automatically transfers the family home to a trust at the grantor’s death which provides more flexibility for the disposition of the property and can avoid the disadvantages of a lady bird deed described above.

Schedule a Free Consultation with an Experienced Ann Arbor Estate Planning Attorney

In my practice at Ager Law Office, I help individuals and families with all aspects of estate planning including lady bird deeds, wills, revocable living Trusts, Power of Attorneys for Financial Matters and Patient Advocate Designations. From my Ann Arbor office, I serve clients throughout Washtenaw County. If you’re interested in a free consultation to discuss a lady bird deed or to discuss a new estate plan or updating your existing plan, call (734) 649-0784, send an email to bill@agerlawoffice.com, or use the online contact form.

Categories: Estate Planning