How to Avoid Probate with a Lady Bird Deed

What is Probate Administration and why should I avoid it?

Probate administration in Michigan is a court supervised process for distributing a person’s estate after he or she passes away, with or without a Will. It can be costly and time consuming and can typically last between 5 months up to a year or even longer. In addition, probate administration is a matter of public record so information about a deceased person’s assets and liabilities are accessible by the general public. Given the downside of probate, an important goal of estate planning in Michigan is to avoid probate administration of your estate.

Fortunately, there are a number of estate planning tools that can be used to avoid probate administration, however whether those tools can be used effectively in a person’s estate plan should be evaluated by an experienced estate planning attorney. The tools of estate planning include Revocable Living Trusts, Beneficiary Designations, Joint Ownership of Property and Lady Bird Deeds, also referred to as Enhanced Life Estate Deeds.

What is a Lady Bird Deed and why should I use one?

A lady bird deed is an important estate planning tool in Michigan that can be used to automatically transfer a person’s home and other real estate directly to a named beneficiary (a “remainderman”) at death. Named beneficiaries on the deed can include a person, multiple persons or a Trust.

One very important advantage of a lady bird deed is that under a lady bird deed, the title holder of the property remains as the owner of the property throughout their lifetime however only at the owner’s death will the property be automatically transferred to the named beneficiary (or beneficiaries) on the deed. In addition, during the property owner’s lifetime, her or she has total control over the real estate with the power to transfer, mortgage, gift or sell the property and keep all proceeds. Note that the named beneficiaries have no control over the property and cannot encumber or in any way interfere with the owner’s use of the property.

Additional advantages include:

• The owner retains the right to draft a new deed to change the beneficiaries or to convey the property back to themselves with no beneficiaries.
• Property taxes will not be uncapped when the lady bird deed is recorded.
• If designated beneficiaries are close family members, there will be no uncapping after death when property is automatically transferred to them.
• There are no state or local transfer taxes upon automatic transfer of the property.
• For married couples, creditor protections remain in place because they will continue to hold the property as “tenancy by the entireties”.
• Principal residence exemption remains in place when deed is recorded.
• There are also advantages for avoiding Medicaid recovery and loss of Medicaid exemptions.

What are the disadvantages of a Lady Bird Deed to consider?

It is most important to understand that there can be disadvantages when using a lady bird deed to transfer property to named beneficiaries, particularly if the named beneficiaries are persons as opposed to a Trust which provides more flexibility about the transfer of the property.

As an example, if a person is listed as a beneficiary on a ladybird deed and then predeceased the title holder of the property, unless the title holder (grantor) drafts a new deed changing the named beneficiary prior to his or her death, the property could go to the deceased beneficiary’s estate and then be distributed in a way that was not the original owner’s intent. Note that the title holder in a lady bird deed retains total control over the property with the right to sell the property or change beneficiaries without their knowledge or consent.

Family dynamics and personal relationships should also be considered when using a lady bird deed to convey property to children and multiple beneficiaries. After the property owner’s death, conflict may develop between beneficiaries about how the property is to be sold or divided. In addition, a lady bird deed with named persons as beneficiaries may not be a good choice if a beneficiary is on governmental benefits, such as Medicaid or disability benefits, which could cause their benefits to be reduced or eliminated. Other considerations include whether a beneficiary may have creditors claims, substance abuse issues, mental health concerns or is not financially mature. Typically, using a Living Trust as a named beneficiary on a lady bird offers much more flexibility to address these concerns.

Should You Include a Lady Bird Deed in your Estate Plan?

Before deciding whether to include a lady bird deed in your estate plan, you should consult with an attorney who has experience with estate planning and real estate. In addition, it is important to understand that a lady bird deed does not necessarily provide a complete estate plan. Other tools of estate planning, including a Will, Revocable Living Trust, Durable Power of Attorney and Patient Advocate Designation, can address all aspects of your estate planning needs.

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

In my practice at Ager Law Office, I help individuals and families with all aspects of estate planning including drafting lady bird deeds. 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 using a lady bird deed in a comprehensive estate plan tailored for your needs call (734) 649-0784, send an email to bill@agerlawoffice.com, or use the online contact form.