A Guide to Executing an Enhanced Life Estate Deed (“Lady Bird Deed”)
An Enhanced Life Estate Deed, commonly known as a "Lady Bird Deed," is a powerful estate planning tool unique to a few states, including Michigan. It allows you to transfer ownership of your property upon your death all while retaining significant control during your lifetime. This unique blend of control and convenience has made Ladybird Deeds increasingly popular. In this article, the estate planning attorneys of Thompson Legal will discuss some of the factors property owners should consider when choosing this type of deed, as well as the steps involved in its execution.
Please note that this post is not exhaustive, and every situation is unique. In the event that you have legal questions it is advisable to speak with a licensed attorney. Contact Thompson Legal to speak with a Michigan Real Estate and Estate Planning attorney today.
What is an Enhanced Life Estate Deed?
An Enhanced Life Estate Deed, is a special type of deed that lets you transfer ownership of your property to someone else (like a family member) while still retaining complete control over it during your lifetime. You get to live in, sell, or even mortgage the property as you wish, but when you pass away, it automatically transfers to your chosen beneficiary without going through the hassle and expense of probate court. It's a popular estate planning tool in Michigan because it offers a unique blend of control and convenience.
Benefits of an Enhanced Life Estate Deed
Enhanced Life Estate Deeds offer several compelling benefits which have made them one of the most attractive estate planning options. Some of the most common benefits of using an Enhanced Life Estate in your estate plan include:
Avoidance of Probate: The property transfers directly to your beneficiaries upon your death, bypassing probate altogether.
Control and Flexibility: You retain complete control over your property during your lifetime, including the right to sell, mortgage, or give it away.
Protection from Medicaid Estate Recovery: In Michigan, Medicaid can recover the costs of long-term care from a deceased recipient's estate. However, if you transfer your property through an Enhanced Life Estate Deed, there may not be an estate to recover from.
Considerations an Enhanced Life Estate Deed
While an Enhanced Life Estate Deed offers significant advantages, they might not be the ideal solution for everyone. Several factors warrant careful consideration before opting for this estate planning tool:
Surviving Joint Ownership: When designating multiple remaindermen in a Ladybird Deed, it's essential to specify how they will hold title to the property after your death. This is typically done by indicating whether they will own the property as "joint tenants with full rights of survivorship" or as "tenants in common."The choice between these two forms of ownership depends on your specific goals and how you want the property to be handled after your death.
Mortgage and Title Policy: If you have a mortgage on the property, it's vital to check with your lender before executing a Ladybird Deed. Some mortgage agreements may have clauses that prohibit or restrict the transfer of ownership through a Ladybird Deed. Violating these clauses could trigger a due-on-sale clause, requiring you to pay off the entire mortgage balance immediately. Similarly, you should review your title insurance policy to ensure that executing a Ladybird Deed won't void or affect your coverage. Some title insurance policies may have exclusions or limitations related to Ladybird Deeds. It's advisable to contact your title insurance company to clarify any potential issues and ensure your policy remains in effect after the deed is executed.
Tax Considerations: While Enhanced Life Estate Deeds avoid probate, they don't eliminate generation-skipping transfer taxes. While Ladybird Deeds themselves don't trigger the GSTT, the eventual transfer of the property to your beneficiaries upon your death could be subject to this tax if the beneficiaries are in a younger generation.
Creditor Claims: Although Enhanced Life Estate Deeds offer some protection against creditors, they aren't foolproof. If you have existing creditors or anticipate potential creditor issues in the future, an Enhanced Life Estate Deed might not provide adequate protection.
Steps to Execute a Lady Bird Deed in Michigan:
Consult an Estate Planning Attorney: This is crucial. Speaking with a licensed attorney with experience in Enhanced Life Estate Deeds will ensure the deed meets your specific needs and integrates with your overall estate plan.
Draft the Deed: Your attorney will draft the deed, accurately identifying:
Grantor: You, the current property owner.
Grantee(s): Your chosen beneficiary(ies).
Type(s): of ownership interest between Grantee(s), and
Legal Description: The precise legal description of your property.
Notarization: You must sign the deed in the presence of a notary public. This typically takes place at the office of your attorney.
Record the Deed: While recording is not required to be legally effective, it is important to complete to ensure all parties have notice. File the notarized deed with the Register of Deeds office in the county where your property is located. Some attorneys also have access to electronically record documents on your behalf.
Alternatives to Lady Bird Deeds
While Ladybird Deeds offer numerous advantages, they might not be the best fit for everyone. There are some alternatives to consider, such as a Revocable Living Trust and using your Last Will and Testament.
A Revocable Living Trust allows you to maintain control over your assets while you're alive and distribute them according to your express wishes after your death, avoiding probate. A Last Will and Testament provides instructions for the distribution of your assets after your death, but requires probate court oversight. Ultimately, the best choice depends on your individual needs and circumstances.
Conclusion
The Enhanced Life Estate Deed, or Lady Bird Deed, stands as a unique and valuable tool used within a Michigan estate plan. By allowing individuals to retain full control over their property while ensuring a smooth and efficient transfer to their chosen beneficiaries upon death, it offers a compelling blend of flexibility and security. While alternatives exist, the Lady Bird Deed's ability to avoid probate, adapt to changing circumstances, and potentially offer Medicaid planning advantages makes it a powerful option for those seeking to simplify their estate and leave a lasting legacy for their loved ones.
However, it's crucial to carefully consider your individual circumstances and consult with an experienced estate planning attorney to determine if a Ladybird Deed is the right choice for you. For further guidance on Enhanced Life Estate Deeds or any estate planning needs, please contact Thompson Legal today to schedule a consultation with an experienced Real Estate and Estate Planning attorney.
This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a Real Estate and Estate Planning Attorney, please Contact Thompson Legal at (734) 743-1646 to schedule a consultation.
