Michigan Lady Bird Deeds
The Major Pros and Cons Explained
What Is A Michigan Lady Bird Deed?
In Michigan, a Lady Bird Deed (also known as a Ladybird Deed or Enhanced Life Estate Deed) is a type of Quitclaim Deed that allows you, the creator, to transfer your property upon your death to a named beneficiary without having to go through the expensive and time consuming Probate process.
There are several different tools an Estate Planning Attorney can use to help you avoid Probate Court: Living Trusts, traditional Life Estate Deeds, and Lady Bird Deeds are among the most popular options. They all avoid Probate, but are best suited for different scenarios. Usually it’s best to consult with an Estate Planning Attorney to help you determine which is best based on your specific situation.
But, if your primary assets are real estate, you qualify for or need Medicaid, and you want to minimize the cost of Estate Planning, then a Lady Bird Deed, is definitely worth considering. To help you understand some of the pros and cons of Lady Bird Deeds in Michigan, we put together this helpful list for you…
Advantages of Michigan Lady Bird Deeds
Maintain Control Of Your Property
Avoid Expensive Probate Court
Cost Effective Estate Planning Tool
Helpful With Medicaid Planning
Avoid Capital Gains Tax
Advantages Of A Michigan Lady Bird Deed
Lady Bird Deeds Can Help You Maintain Flexibility And Control Over Your Property
When compared with a traditional Quitclaim Deed or Life Estate Deed, a Lady Bird Deed is a much more flexible option. Using a Lady Bird Deed in Michigan allows you to retain control of your property during your lifetime, meaning that you can still sell or mortgage your property at any time if you want.
A Lady Bird Deed can also offer some protection from the creditors of your beneficiaries. Your beneficiaries’ creditors will not be able to attach to the property while you are alive, because your beneficiary will only receive the property if you, the creator of the deed, are still the owner upon death.
This will allow you to change the beneficiary if your children are sued or develop creditor problems. A Lady Bird Deed also provides some tax protection for your beneficiary that a traditional Quitclaim Deed cannot. Once you pass, your “tax basis” in the property will “step up” to its value at death. This could save your kids tens of thousands of dollars (or more) in capital gains tax.
Michigan Lady Bird Deeds Can Help You Avoid The Long and Expensive Probate Court Process
One of the major benefits of a Lady Bird Deed as an Estate Planning resource is that it helps you avoid Probate Court. Probate is the legal process through which the court ensures that, when you die, your debts are paid and your assets are distributed according to Michigan law.
It can be VERY expensive. Legal fees, executor fees, inventory fees (county taxes), and other costs have to be paid before your assets can be fully distributed to your heirs. These costs can vary widely, but we’ve had clients who had to pay tens of thousands of dollars throughout the Probate process. In general, Probate is much, much more expensive than doing some simple planning in advance.
Lady Bird Deeds Can Be A Cost Effective Estate
A Lady Bird Deed is often an ideal Estate Planning tool for those whose only major asset is the home they own. This deed accomplishes a similar outcome to that of a Living Trust in that it can help your family avoid the long and expensive process in Probate Court after you pass; however, a Lady Bird deed is significantly less expensive than a Living Trust for those with relatively few assets.
Michigan Lady Bird Deeds Can Help You With
Medicaid Estate Recovery Laws allow the State of Michigan to submit a claim on the Estate of a person who received Medicaid benefits to recoup costs the State incurred. In other words, the State of Michigan can attempt to collect back the money it paid to you by filing a claim against your Estate in Probate.
If your home goes through Probate, it could be subjected to a Medicaid Recovery and the proceeds could be taken by the State. However, a Lady Bird Deed allows for you to qualify for Medicaid benefits while preventing the government from going after your home. Since Lady Bird Deeds avoids Probate, they prevent your home from being subject to Medicaid Recovery in Michigan.
Lady Bird Deeds Can Reduce Risk and Help You Avoid Capital Gains Tax
A Lady Bird Deed in Michigan makes it so that you don’t need to add your children’s names to your deed to make them joint owners or co-owners. Why is this an advantage? When you put your kids on your deed as a co-owner, they gain a present ownership interest in your house.
This can put the house in jeopardy if your kids go through a bankruptcy or a divorce, or if they are sued. Using a Lady Bird Deed helps reduce additional risk because it only passes ownership to your kids at death without giving them a present ownership interest in your home.
This means that during your life, your home is not exposed to risks from your children’s creditors or from ex-spouses. Additionally, a Lady Bird Deed can help reduce future capital gains taxes on the sale of your home, can avoid uncapping of your taxes, and it won’t count against your gift tax exemption until you pass.
What Are The Disadvantages Of A Michigan Lady Bird Deed?
One disadvantage to a Lady Bird Deed is that it is not available in every state. Also, if you’re leaving the property to more than one beneficiary, a Lady Bird Deed is not necessarily the easiest or most flexible solution. If you own more than just your home, a Lady Bird Deed might not be enough to keep your family out of Probate.
Also, a Trust may be a better option if you want to control when your beneficiaries receive the home (for example, at the age of 25); if you want to protect your beneficiaries from creditors, substance abuse problems, bankruptcy or divorce after you pass; or if you want to maintain the ability of your beneficiary to continue to receive needs based government benefits such as Medicaid.
How To Determine If A Michigan Lady Bird Deed Is Right For You
To determine what method of property transfer is best for you, whether it be a Lady Bird Deed or Living Trust, it’s best to consult an experienced Estate Planning Attorney. Deciding whether a Lady Bird Deed is right for you is not straightforward and will be based on your unique situation.
Over the past decade at Rochester Law Center, we’ve helped 1,000s of Michigan families Estate Plan. To schedule a Free Estate Planning Consultation, call us at 248-613-0007. We will help you address all of your property transfer concerns and help you create a roadmap for a secure future for you and your family!
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Written By Chris Atallah - Founder, Rochester Law Center, PLLC
Written By Chris Atallah - Founder, Rochester Law Center, PLLC
Chris Atallah is a licensed Michigan Attorney and the author of “The Ultimate Guide to Wills & Trusts – Estate Planning for Michigan Families”. Over that past decade, Chris has helped 1,000s of Michigan families and businesses secure their futures in all matters of Wills, Trusts, and Estate Planning. He has taught dozens of seminars across the State of Michigan on such topics as avoiding the death tax, protecting minor children after the parents’ death, and preserving family wealth from the courts and accidental disinheritance. If you have any questions, Chris would be happy to answer them for you – just call at 248-613-0007.