In a lady bird deed, the owner of real estate transfers a contingent ownership interest in the property to designated beneficiaries, while retaining an enhanced life estate. The ownership interest of the beneficiaries does not vest until the death of the property owner.
The enhanced life estate retained by the owner includes the right to change or terminate the lady bird deed. A property owner who creates a lady bird deed retains full rights to transfer, use, control, and profit from the property during their lifetime. The owner can still mortgage or sell the property, or give it to someone as a gift. The beneficiaries do not have an ownership interest in the property unless the owner dies while the lady bird deed is still in effect.
A properly-drafted lady bird deed may provide desirable benefits for a real estate owner. One of the major advantages is that the owner retains full control of the property during their lifetime, including the right to sell or transfer it. As long as the owner is alive and has the capacity to revise legal documents, provisions of the lady bird deed can be changed or the deed can be revoked and terminated. However, if the deed is still in place on the owner’s death, ownership of the property transfers to the designated beneficiaries automatically.
Another advantage is that property transferred through a lady bird deed does not go through the court-supervised probate process. Avoiding probate saves time and expenses. It also maintains the privacy of financial details of the estate.
Tax benefits are another potential advantage of transferring property through a lady bird deed. Executing a lady bird deed does not subject the property to gift tax. Beneficiaries who inherit property through a lady bird deed may receive a stepped-up tax basis, which avoids payment of significant capital gains taxes. A lady bird deed also may avoid property tax uncapping of the transferred property in some situations.
Lastly, a lady bird deed may be a useful tool for individuals anticipating the need for Medicaid assistance for nursing home and long-term care costs. In some situations, executing a lady bird deed may enable a person to meet the strict asset requirements for Medicaid eligibility. In addition, using a lady bird deed may protect assets from the Michigan Estate Recovery Law, which allows the state to claim reimbursement from an estate for Medicaid benefits paid during the deceased person’s lifetime.
While there can be benefits to using a lady bird deed, there also are disadvantages to this method of real property transfer. Designating minor beneficiaries in a lady bird deed raises significant issues that must be addressed, as does naming multiple beneficiaries. Other issues can arise as well. Deciding whether to use a lady bird deed requires balancing the advantages and disadvantages, as well as exploring alternatives that may be more appropriate.
For some individuals, creating a revocable living trust as part of an estate plan provides greater flexibility and protection for assets than a lady bird deed. For Medicaid planning purposes, other available strategies may provide better options than a lady bird deed.
The only way to find out if a lady bird deed is a good fit for your estate plan is to discuss your financial and personal circumstances with a Michigan estate planning attorney. Your attorney has the skill and knowledge to help you decide whether a lady bird deed, living trust, or another approach is the best strategy for your circumstances, goals, and family.
Caution is in order if you consider using a lady bird deed as part of your estate plan. It’s important to remember that a lady bird deed is not a substitute for a complete estate plan — just as a Last Will and Testament is not an estate plan. Other legal documents are an essential part of any estate plan. In addition, you should never create a lady bird deed without talking with an estate planning attorney by using a form or online service. The do-it-yourself / DIY approach to any aspect of estate planning creates substantial risks for you and for your family.
Our BRMM attorneys assist individuals and families with all aspects of Michigan estate planning and elder law, including Medicaid planning and nursing home planning. We’ve been serving clients in Oakland County and beyond for more than 40 years. Our clients count on our commitment, experience, and credentials when they turn to us for their legal needs.
Call us today at (248) 494-4577 or use our online form to talk with our experienced estate and probate attorneys.