March 29, 2021
What is a Lady Bird Deed?
Lady Bird Deed or Enhanced Life Estate Deed is named after Lady Bird Johnson. It is a type of Life Estate Deed. The life estate holder also called the grantor or life tenant, maintains possession of his/her home as long as he/she is alive. Upon the death of the homeowner, the life estate ends, and the home is automatically transferred to the beneficiary, also called the grantee, remainderman, or the remainder beneficiary.
Atty. Chris Berry further explains what is a Lady Bird Deed in this episode of Daily Wisdom.
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Episode Transcript
Life Estate Deed
Hi, this is Chris Berry with Castle Wealth Group, and today we’re going to talk about lady bird deeds, what is a lady bird deed and why you may or may not want one. If you like this information, please make sure to subscribe to our YouTube channel.
Christopher Berry is a leading estate attorney and advisor in the area of retirement and legacy planning. He has been featured in publications such as Forbes, Kiplinger’s, Crain’s Detroit and more. He’s the host of the weekly radio show and podcast, The Chris Berry show. He’s a national thought leader as it relates to retirement and legacy planning and as author of the Amazon best selling book, The Caregiver’s Legal Guide.
So a lady bird deed, the technical name of a lady bird deed is an enhanced life estate deed, but typically we call it a lady bird deed because there was a law professor that wrote a book on different types of deeds, and he named each type of deed after a celebrity, hence Lady Bird Johnson for the lady bird deed. Why do we use a lady bird deed in Michigan? Well, real estate, and that’s what a deed controls or what a deed kind of handles, it can be a little bit tricky where you’re the owner of your home, but how do you make sure the home avoids probate? Do you add one of your kids jointly to the property? We really would not recommend that because you’re opening yourself up to all the potential liabilities of that person. Do you put it directly into a revocable living trust? Typically, we wouldn’t recommend that because that screws it up for Medicaid purposes. Plus, you can destroy some of the asset protection that the State of Michigan has given married couples as it relates to owning property just in their name, not inside of a revocable trust.
So typically, in our office we’re doing one of two things. If we’re setting up an asset protection trust like a Castle Trust, we’ll deed the property directly to the trust because now it’s asset protected, we can sell the property if we want to, and the proceeds would be protected. But what if we’re not doing an asset protection trust? Then we would typically do a lady bird deed. What a lady bird deed says is that it’s in your name while you’re alive. You can refinance it. You can sell it. You can do whatever you want while you’re alive, but if you happen to pass away and the home is still in your name, then it transfers to whoever you’ve listed on that lady bird deed. So in essence, it’s like a beneficiary designation for your home.
Avoiding Probate
By doing this, A, it avoids probate, which in Michigan is a five month process, but then also, especially if you’re concerned about long-term care, the home is exempt for Medicaid while you’re alive. Then upon death, if the home were to enter probate, the State of Michigan can place a lien on the home. It’s called a state recovery. So what the lady bird deed does is it keeps the home exempt while alive, which a revocable living trust would not, and then upon death, it avoids probate and avoids that estate recovery, so now that real estate can go to whoever you named on that deed as a beneficiary. So a lot of times we’re using the lady bird deed as a trust alternative to avoid probate. Or, even if we have a revocable living trust, we’ll use the lady bird deed as a way to get the real estate into the trust upon death.
Now, we would not use a lady bird deed if we’re setting up an asset protection trust. Instead, we would deed the property directly to the trust. But if we’re just setting up a revocable living trust to avoid probate and control the distribution upon death, that’s where the lady bird deed really shines because we can refinance it. It keeps it simple while alive. If you sell, no big deal. Then upon death, it flows into the trust or flows to your beneficiaries, avoiding probate and avoiding that estate recovery. This is a much better way to handle real estate than adding someone joint or doing what we call the deed in the drawer trick where you sign a deed but you don’t record it. There’s a lot of issues with that type of deed. So lady bird deeds, we do a lot of them in our office. Really, the only time we don’t do a lady bird deed is if we set up an asset protection trust like a Castle Trust. Then in that situation, we’d have moved the deed directly into the trust.
If you want more information on lady bird deeds, feel free to reach out to our office or give us a call. This has been Chris Berry with Castle Wealth Group. Make sure to subscribe if you like this information. Thank you so much.
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