July 14, 2016
What is a Ladybird Deed in Michigan?
The Ladybird deed is a specific type of warranty deed or quitclaim deed that has become popular in recent years because of its many benefits including the ability to transfer property to someone else outside of probate while retaining a life estate in the property. A Ladybird deed’s proper name is an “enhanced life estate” deed because unlike a regular life estate, a Lady Bird deed gives you the power to retain control of the property during your life, including the right to use the property for profit or to sell the property. Legend has it that President Lyndon B. Johnson conveyed real estate to his wife, Lady Bird Johnson, by means of this type of deed, hence the deed taking on her namesake. The name actually came into existence when Jerome Ira Solkoff, a Florida attorney, used a fictitious cast of characters, which included Lady Bird, in his elder law materials to illustrate the usefulness of the enhanced life estate transfer.
Do I Need a Ladybird Deed in Michigan?
There are many situations that may warrant the use of a Ladybird deed; nevertheless, there are a couple common situations when our Livonia elder Law expert attorneys often recommend the use of a Ladybird deed.
A widow or widower who has adult children as the beneficiary of all assets is typically a great candidate for a Ladybird deed. For example, if the adult children are transfer on death beneficiaries on the widow’s bank accounts, and the beneficiaries of her life insurance, the real estate could be conveyed via a Ladybird deed and avoid the need for probate.
A mistake we see at the Elder Care Firm is a parent adding an adult child to their property via a quit claim deed for the purpose of avoiding probate (not using a Ladybird deed). The intention of avoiding probate is good; however, this mechanism to do so is a mistake.
What the parent fails to realize in this situation is that when you add a person, even your child or any person onto a deed, the child is now half owner of the property without any restrictions. If the child were to file for bankruptcy, get a divorce, or get sued, the property would be considered an asset of the child’s. After all, the child is half-owner of the property.
A better way to accomplish the client’s goal of avoiding probate includes a ladybird deed to transfer the property. A ladybird deed is akin to adding a beneficiary designation to the property. The beneficiary’s interest in the property does not ripen until the death of the client. Therefore, the client’s goal of avoiding probate is met, without the potential risks of adding a new owner during the client’s lifetime.
Maybe You Shouldn’t Use a Ladybird Deed in Michigan…
Another option is an asset protection trust like a Castle Trust™. The asset protection trust avoids probate and avoids Enhanced Estate Recovery. . Ladybird deeds work now with estate recovery, but if Michigan gets around to passing Enhanced Estate Recovery (they’ve tried once already…), then the Ladybird deed will blow up because the lien would be placed when your loved one enters the nursing home, not when they pass away and the property goes through probate. In that case the Ladybird deed would fail and not protect against estate recovery, while the asset protection trust would.
Want to Find out if a Lady Bird Deed is Right for Your Family?
The next step is to attend one of our free Clarity Builder Workshops™, which we hold weekly at one of our South-East Michigan offices. In these workshops we talk about how to protect your home from probate and estate recover. We discuss whether a Lady Bird Deed makes sense or does it make more sense to use an asset protection trust to protect your home. Seating is limited so register now.