Is a Lady Bird Deed Legal in Michigan?

Dealing with real estate in an estate plan can be difficult, depending on your goals and desires for asset protection, avoiding probate, and reducing tax liability. Real estate can also be difficult to manage when you are discussing Medicaid planning and long-term care planning. However, one option that may be suitable for some individuals is the Lady Bird deed. A Michigan estate planning attorney can assist you in evaluating your current and future estate planning and long-term planning needs and goals to determine if a Lady Bird deed is the best option for your situation.

What is a Lady Bird Deed?

A Lady Bird or ladybird deed is simply a deed that transfers real estate to another party while retaining a life estate and the lifetime power to convey the property for the grantor. In other words, the grantor conveys the property but retains the power to sell, gift, lease, mortgage, or otherwise dispose of the property. A Lady Bird deed is considered an enhanced life estate deed.

The Lady Bird deed is recognized and legal in Michigan as a proper transfer of real estate, even though the transfer is subject to the rights of the grantor for the grantor’s remaining lifetime. Life estate deeds like the ladybird deed have been a useful estate planning and elder planning tool because they can assist individuals in accomplishing several estate planning and long-term planning goals.

However, Lady Bird deeds are not the best option in every situation. Let’s discuss some of the questions that arise when considering whether a life estate deed such as a ladybird deed is the best option give your circumstances.

What are the Advantages of a Lady Bird Deed?

Some of the advantages of a Lady Bird deed include:

  • You can continue to exercise control over your real estate during your lifetime;
  • Protect your interest in your real estate from the grantee’s financial problems during your lifetime;
  • Assist in long-term care planning; and,
  • Avoid probate and reduce or eliminate tax liability for the grantee.

Even though there are advantages, there are also some issues and questions that can arise when using a Lady Bird deed to convey real estate.

  • Mortgages

In some cases, a mortgage can be considered a conveyance of an interest in the real estate, which could defeat the grantee’s remainderman’s interest in the property. This issue can usually be avoided by including specific legal language in the deed. The legal language needs to state that any subsequent mortgage signed by the grantor is not considered a conveyance of real estate, but only a grant of a security interest in the real estate.

  • Predeceased Remainderperson Interest

Careful consideration must be given to the options available for the grantor should the grantee of a life estate deed predecease the grantor. What happens to the real estate if the grantor fails to sign another deed before the grantor’s death? Several options may be considered and discussed in detail with a Michigan estate planning attorney. Possible options might include the transaction fails completely if the grantee predeceases the grantor; the real estate may go to the grantee’s estate; include language to name the grantee’s descendants by right of representation; name joint tenants as grantees; or, name the grantor’s revocable trust as the remainderperson so that the property passes through the trust to the trust’s beneficiaries. A revocable trust as the remainderperson could also resolve other issues that may arise with a Lady Bird deed.

  • Medicaid Planning

Lady Bird deeds are recognized and approved by the Michigan Department of Health & Human Services. At this time, transfers of real estate through ladybird deeds are exempt from Medicaid recovery proceedings because the real estate does not pass through probate. However, that exemption is subject to change in the future. A Michigan Medicaid planning attorney should be consulted to ensure the steps you take now do not adversely affect your eligibility for Medicaid assistance if you need it in the future.

  • Avoiding Probate

The real estate transferred through a Lady Bird deed is not subject to probate. However, you still need a will and other estate planning documents to ensure that other assets and matters are addressed properly.

  • Creditor Protection

A Lady Bird deed does not protect the real estate from your creditors during your lifetime. However, it can protect your interest in the property from the creditors and other financial problems of the grantee during your lifetime. It is important to note that a remainder interest is subject to levy, execution, and sale. While it can be extremely difficult to value a remainder interest, the interest could be at risk in certain circumstances. The grantor could, during the grantor’s lifetime, convey the real estate to another party to defeat a creditor of the original remainderperson.

  • Tax Liabilities

Because the grantor is not transferring ownership interest with a Lady Bird deed, there is not a gift-tax owed when a life estate deed is executed. However, because the grantor held title until his or her death, the value of the property is included in the grantor’s estate for tax purposes.

Contact a Michigan Estate Planning and Elder Planning Attorney for Help

There could be other matters that should be considered when deciding whether a Lady Bird deed is right for you. Before you execute any deeds or documents related to real estate and other property, it is wise to discuss your plans with a Michigan estate planning lawyer.

Call 888-390-4360 or use the contact form on our website to schedule an appointment with one of our estate planning and elder planning lawyers.

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