When Should a Lady Bird Deed Be Used?

A scale house on some forms for a deed to conceptualize on a lady bird deed.In Michigan, a Lady Bird Deed has many estate planning benefits. By using a Lady Bird Deed the owner of a property may deed the property to whomever they want, usually their children, but reserve for themselves a life estate. They retain the ability to sell, give away, or mortgage the property at any time while they are alive. If the owner of the real estate keeps the property throughout their lifespan, the property will pass directly to those they named after they have passed away.

A Lady Bird Deed is a great planning tool because:

  • The real estate contained in the deed avoids probate. Upon death, the property is immediately titled to the beneficiary and no probate is required.
  • A Lady Bird Deed is not a divestment for Medicaid purposes so a Lady Bird Deed does not cause any divestment penalty and can be made at any time, even after someone is in a nursing home.
  • A Lady Bird Deed avoids estate recovery. Michigan has now enacted estate recovery against anyone’s probate estate who has received Medicaid. Because a Lady Bird Deed does not put the real estate through probate, it avoids estate recovery and protects the home.
  • The property obtains a stepped-up basis. Because the property was acquired from the deceased by reason of death, the beneficiary takes the stepped-up basis in the property, meaning the value at the time of the transferor’s death, therefore, avoiding capital gains tax.
  • A Lady Bird Deed does not uncap your property tax value, so in doing a Lady Bird Deed you do not have to worry about the taxable value of your homestead going up.
  • A Lady Bird Deed does not allow your beneficiaries’ creditor or spouse to obtain an interest so long as you are alive. Unlike other deeds, if you put someone on real estate with you, their creditors and their spouse may have certain rights to it. However, when you execute a Lady Bird Deed, the beneficiary does not acquire the interest until your death. Therefore, until that time, there is no transfer of ownership and they do not have an interest in the real estate that can be taken by their creditors or their spouse.

A Lady Bird Deed is a great estate planning tool to avoid the cost and time associated with probate; and now with the enactment of Medicaid Recovery in July of 2011, it has the additional benefit because of its non-probate nature. Lady Bird Deeds have many protections that Quit Claim Deeds, Life Estate Deeds, or Warranty Deeds do not offer and are not filled with the potential problems of those deeds.

Contact an Experienced Michigan Estate Planning Attorney

To determine if a Lady Bird Deed is right for you and your family, contact an experienced Michigan Estate Planning attorney at Biddinger & Estelle, PC by calling (989) 872-5601 to schedule an appointment.

Michelle P. Biddinger
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