Lady Bird Deeds in Michigan: A Powerful Estate Planning Tool
Among the various estate planning tools available you, one lesser-known but highly effective option in Michigan is the Enhanced Life Estate or Lady Bird Deed. This type of deed provides a unique way to transfer property while retaining control during your lifetime. In this post, the estate planning attorneys at Thompson Legal will delve into the concept of Lady Bird Deeds, their advantages, and how they can benefit you in your estate planning efforts.
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 Estate Planning Attorney today.
What Is an Enhanced Life Estate or Lady Bird Deed?
An Enhanced Life Estate or Lady Bird Deed is a legal instrument used in estate planning that allows property owners to transfer real estate to their chosen beneficiaries while retaining certain rights and control over the property during their lifetime. In this type of deed, the property owner transfer title to the subject property to themselves (or another person) for the duration of their lifetime. The deed also names the person or persons who receive the property after the prior owner has passed away. This type of deed is especially popular in Michigan due to its flexibility and benefits.
Michigan Land Title Standards 9.3
Michigan's Land Title Standards 9.3 provides a comprehensive framework for the enhanced life estate deeds, or Ladybird Deeds. This section outlines the essential elements and requirements for these deeds to be considered valid and marketable. It specifies that a Ladybird Deed must clearly state the grantor's retention of a life estate and an absolute power to convey or encumber the property during their lifetime, without the need for the remaindermen's consent. Additionally, it clarifies the transfer of ownership to the designated remaindermen upon the grantor's death, avoiding probate proceedings.
Differences Between an Enhanced Life Estate and Life Estate Deed
A Life Estate is a term for type of real estate ownership that lasts for the duration of a person’s lifetime. When that person passes away, the property is transferred automatically to those who have a remainder interest in it. An Enhanced Life Estate allows a property holder to transfer property to a named beneficiary while retaining certain rights to stated property, including the ability to modify the deed, sell their ownership to someone else, or mortgage their property. This means that in order for a property owner to be able to modify their deed, the life estate must be enhanced.
Key Features of a Enhanced Life Estate or Lady Bird Deed
Retained Control: With an Enhanced Life Estate Deed, the grantor (property owner) retains full control of the property during their lifetime. They can sell, mortgage, or change beneficiaries without needing the consent of the remainder beneficiaries. Meanwhile, the future beneficiaries may not partition, sell, or otherwise encumber the property.
Avoiding Probate: One of the primary benefits of a Lady Bird Deed is its ability to bypass probate. Upon the grantor's passing, the property automatically transfers to the remainder beneficiaries without the need for probate court involvement, which can save time and money.
Medicaid Planning: Lady Bird Deeds can be valuable in Medicaid planning. Estate recovery may be avoided, there is no divestment or loss of exemption for Medicaid purposes. Note however, that the property is still a countable asset for Medicaid purposes unless it’s exempt (i.e., a homestead).
Property Tax Benefits: In Michigan, the transfer of property through a Lady Bird Deed does not trigger a reset of the property's taxable value. This can lead to potential property tax savings for the remainder beneficiaries. The property will also not lose the step up in basis under IRC 1014 and 2036(a).
Flexibility: Lady Bird Deeds can be amended or revoked by the grantor at any time during their lifetime, offering flexibility to adapt to changing circumstances or estate planning goals.
Liability protection: One notable benefit of a lady bird deed for a married couple is that the couple retains the protection of tenancy by the entireties. Additionally, liability insurance on the property will not need to be updated as ownership has not changed.
One disadvantage of an Enhanced Life Estate or Lady Bird Deed is that the property is an asset for federal estate and generation-skipping taxes (i.e., not a completed gift). Therefore, you should speak with a tax professional about any gifting issues you think may arise.
Who Can Benefit From an Enhanced Life Estate or Lady Bird Deed?
Enhanced Life Estate and Lady Bird Deeds can be particularly advantageous for individuals and families with simple estate planning objectives, including:
Those who wish to avoid the time and costs associated with probate.
Property owners concerned about Medicaid eligibility.
Individuals who want to ensure that their home or property passes directly to chosen beneficiaries.
Those who want to maintain control over their property during their lifetime while having a clear plan for its transfer upon their passing.
Conclusion
Michigan's Lady Bird Deed, or Enhanced Life Estate Deed, is a powerful estate planning tool that offers flexibility, control, and the ability to bypass probate. It can be a valuable addition to your estate planning strategy, but it's essential to consult with an experienced estate planning attorney to ensure it aligns with your specific goals and circumstances. Contact Thompson Legal to discuss learn more about the benefits of a Lady Bird Deeds.
This blog is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with an estate planning attorney about your case Contact Us at (734) 743-1646 to schedule a consultation.
