This time of year, lots of people are thinking about buying or selling a home. If you own a home, or are about to buy one, you should consider an estate planning technique commonly known as a Lady Bird Deed. The Lady Bird deed is thought to have acquired its name after President Lyndon B. Johnson used this type of deed to convey land to his wife, “Lady Bird” Johnson. And that is the main advantage of using a Lady Bird Deed—it enables people to transfer ownership of real property at the time of death without that property being probated.
A Lady Bird Deed is often used by parents who want to live in their home until death and then deed the property to their children or their Revocable Trust without the transfer of this property being probated. In addition, this type of deed would also allow the homeowner to sell the property at any time prior to death without notifying the beneficiaries. This gives parents a lot of flexibility regarding how they want to transfer property and, more importantly, helps the children who inherit the property avoid probate.
Additional benefits of the Lady Bird Deed include no property tax uncapping, Michigan’s Estate Recovery Law does not apply to this type of deed, there are no transfer taxes, the property will still receive a step-up in basis upon death, the capital gain exclusion as one’s primary residence still applies, and there is no due on sale or acceleration of a mortgage. It also enables you to keep the right to use and profit from the property during your lifetime; keep the right to sell the property at any time; and doesn’t jeopardize a person’s eligibility for Medicaid. Furthermore, there are no restrictions with refinancing or obtaining a home equity line of credit on the property.
The Lady Bird Deed should be filed immediately after it is signed with the county Register of Deeds. In addition, a Property Transfer Affidavit is filed with the city or township assessor’s office.
A Lady Bird Deed is also better than using the popular quitclaim deed (which also is intended to pass title to a property), because in many instances a quitclaim deed does not get filed until after the owner’s death. Many times, the quitclaim is lost or cannot be found after the owner’s death. A probate proceeding will then be necessary to transfer the real property. Because the Lady Bird Deed is filed after signing the document the transfer to the beneficiary will be effective immediately and there would be no need for probate.
If a quitclaim deed is immediately filed adding children as a co-owner and if that child is sued, the property may be fully attached by the child’s claimant. Because a beneficiary of the Lady Bird Deed has no rights until the death of the owner of the real property, a beneficiary’s creditor has no rights to the property (until the owner’s death). The Lady Bird Deed does safeguard against these potential issues.
While the Lady Bird Deed is not able to be used in all states, it is a popular estate planning technique in Michigan, Florida and Texas. If you own real property and would like to explore whether the Lady Bird Deed makes sense for your estate planning, email me at jonathan@bloomlawfirm.com.
