Lady Bird Deed Michigan: What Is It? Who Is It For? Should You Have One?

estate planning Mar 02, 2023

^{_{Michigan lady bird deeds are important estate planning tools}}

This article explaining the Michigan lady bird deed by Medicaid planning and estate planning attorney Nicole Wipp is not, and should not be construed as legal advice. It is for informational purposes only. Contact our office at 248-278-1511 or consult a qualified attorney to learn whether this critical estate planning tool is right for you.

Is a lady bird deed legal in Michigan?

Yes! In fact, lady bird deeds are considered an important estate planning resource and are very often an important part of a Michigan families estate plan.

What is the purpose of a lady bird deed in Michigan?

A Lady Bird deed is a on death deed, meaning that it transfers real property to a person, trust or other entity upon the owner's death. I often tell people it's like having a beneficiary designation for your house!

Under a Lady Bird deed, the grantor stays the property owner throughout life, but only on death does the ownership interest in property transfer to the beneficiary. During the grantor’s life, the grantor may transfer, mortgage, lease, or perform any other transaction concerning the real estate.

How a Michigan Lady Bird Deed Works

In a Michigan lady bird deed, a person retains the right to own property throughout their lifetime and automatically transfers it when they die - an enhanced life estate deed. Property transfers occur automatically upon previous owners' death, so that a person can avoid probate.

The lady bird deed works by partitioning the owners' life and future interests. If you make a Lady Bird Deed, you transfer present ownership interest the property to your family. This creates life interests or life assets. The person holding life assets is referred to as a life tenant.

How Did The Lady Bird Deed Get Its Name?

_{^{Fun fact the lady bird deed was not created by President Lyndon B Johnson}}

While many people believe that it is named a Lady Bird deed because President Lyndon B. Johnson conveyed property to his wife, Lady Bird, using this type of deed, the truth is that it isn't. President Johnson had nothing to do with it, in fact, it was actually named by an attorney in Florida, Jerome Solkoff!

(If you want to read the fascinating story of how this was discovered - it took way more work than one would imagine, please read this article by attorney Kary C. Frank, The Search for The Lady Bird Deed, 34 Mich Prob & Est Plan J 25 (Summer 2015).)

The lady bird deed is also often called an "enhanced life estate deed." Don't let this confuse you - it is another way to say the same thing.

Benefits of Michigan Lady Bird Deeds

The advantages of a Lady Bird deed as an enhanced life estate deed against other types of transfers, including traditional life estate deeds, are as follows:

You don't risk having a major property tax situation because you put the deed in the drawer (please DO NOT DO THIS, even if it was done with legal advice. Find another (qualified) attorney!).

_{^{Don't take risks with your tax basis, property taxes or capital gains tax. Consult with a qualified attorney about whether having lady bird deeds is right for you.}}

There is no due on sale or acceleration of the mortgage note with a lady bird deed.
A married couple retains tenancy by the entireties protection.
You can use it to avoid probate, including the legal fees, court cost, and time involved.
Liability insurance does not need to be changed.

But How does it affect my Taxes?

Again, there's good news: a Michigan lady bird deed isn't a tax nightmare waiting to happen. Although people often have property transfer concerns related to probate, a lady bird deed is often an ideal estate planning tool.

There is no uncapping of property tax.
There is no rescission of the principal residence exemption.
There is no gift tax owed under the Internal Revenue Code.
The property does not lose the step-up in basis under IRC 1014 and 2036(a).
The property does not lose the capital gain exclusion under IRC 121.
There is no county transfer tax.
There is no state transfer tax.

^{_{Enhanced Life Estate Deed for Your Estate Plan - Avoid Capital Gains Tax}}

Using a Lady Bird deed, with the grantor retaining an enhanced life estate, does not cause an uncapping under MCL 211.27a(7)(c). In addition, if the Lady Bird deed is regarding a home, there is no change in the home status to cause a rescission of the principal residence exemption.

The box on the property transfer affidavit describing the life estate should be checked, and the affidavit should be filed at the assessor’s office. In addition, there is no uncapping at the grantor's death if it is residential property and is to certain relatives. MCL 211.27a(7)(d).

Contact us today to see if a Michigan lady bird deed is right for you. (248)278-1511

Lady Bird Deeds and Medicaid

HOW WILL IT AFFECT MY ABILITY TO RECEIVE NURSING MEDICAID BENEFITS?

The Michigan lady bird deed does not hurt your ability to receive benefits for Medicaid in a nursing home. In fact, it has several benefits:

Because you avoid probate, estate recovery will be avoided.
No divestment for Medicaid purposes would create a penalty.
There is no loss of any Medicaid exemption for the principal residence (however, putting the property into a revocable living trust would take away the exemption, which is a very common mistake many estate planning attorneys make).

A Michigan Lady Bird Deed Can Help You Avoid Medicaid Estate Recovery

Although a lady bird deed is not the right tool for asset protection during life from the Medicaid spend-down (particularly if the property is not the primary residence), it is an important tool for primary residences when applying for Medicaid because it avoids probate, therefore avoiding Medicaid recovery.

This is why having an experienced elder law attorney when discussing your plan is important. While many things make sense for estate planning, they don't always make sense when trying to protect assets during life.

We can help!

If you want to learn more about Medicaid recovery and how it affects you, click here.

Beneficiary issues:

The grantor keeps control during life and may transfer, mortgage, lease, or perform any other transaction concerning real estate.
The capacity of the beneficiary does not affect the property.
There is no exposure to future beneficiaries’ creditors during the grantor's life.
Future beneficiaries may not sell or encumber the property.
Future beneficiaries may not partition or interfere with the use of the property.
The risk of elder abuse is reduced.

_{^{Michigan lady bird deeds are often a better planning tool than traditional life estate deeds}}

What are the disadvantages of a lady bird deed?

To be clear, the disadvantages of lady bird deeds only apply to certain people in certain situations and do not apply to most. This is an area where, if you think it may apply to you, it is crucial to get good legal advice.

The property is a countable asset for Medicaid purposes unless it is exempt (i.e., a homestead/princip al residence). To be clear, it is not the fact that it is a lady bird deed that causes this issue; it is the fact that the property in question does not qualify for an exemption under the rules. In that case, there are much better planning tools. This is where getting qualified legal advice can really help.
The property is an asset for federal estate and generation-skipping taxes (i.e., not a completed gift).
There is no control after death unless the property is conveyed to a trust.
Some assessors and register of deeds personnel are unfamiliar with Lady Bird deeds and may misclassify them (although this is very uncommon these days).

Michigan Lady Bird Deeds Can Help You Avoid The Long and Expensive Probate Court Process

Under Michigan law, a ladybird deed transfers ownership of real property at death and avoids probate court too. One of the most time-consuming probate process issues deals with houses, land, and other forms of property.

Using the lady bird deed will help you avoid that.

Having a Michigan Lady Bird Deed Can Be An Important Part of Your Estate Planning

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How To Determine If A Michigan Lady Bird Deed Is Right For You

Even though there are many advantages to having a Michigan lady bird deed as part of your estate planning, there are, as stated earlier, a few instances when they aren't appropriate.

The most pressing issue for a majority of our clients comes when they are trying to do Medicaid planning and want to ensure that their assets are protected. Specifically, a ladybird deed will not be the best planning tool in that instance.

Learn about gift tax here.

To learn more about Elderly Care click here.

Learn about Last Will and Testaments by clicking here.