LADY BIRD DEEDS: Benefits and Limitations
During the past 20 years, another weapon in the arsenal of estate planning documents has been more frequently used: “Lady Bird deeds.” A lady bird deed creates a general lifetime power of appointment, and names a default beneficiary to receive property upon the death of the owner who is donee of the power of appointment. This type of deed, according to legend, acquired its nickname when President Lyndon B. Johnson used it to convey property to his wife, Lady Bird Johnson. It is expressly recognized as valid in this state under Michigan Land Title Standard 9.3
Benefits
Using a lady bird deed allows an owner to retain control of real property during his lifetime, and pass ownership to person(s) of his choice upon his death, outside of probate. It can be used as a simple, inexpensive estate plan for persons whose residence is the major or only asset that may need to be probated upon their death. After the owner’s death, the default beneficiary need only record the death certificate and file a Property Transfer Affidavit with the local assessor. (If a default beneficiary plans to use the property as his or her own residence, he or she should also then apply for a Principal Residence Exemption for property taxes.)
Typically, property owners name themselves as both grantor and grantee in the lady bird deed, and as both donor and done of the power of appointment. In this way, married couples retain protection from creditors while both spouses are living. A default beneficiary receives no incidents of ownership until the death of the donee, so the property is also protected during the owner’s lifetime from claims by creditors of the beneficiary. Execution of a lady bird deed is not considered a gift subject to federal gift tax, or a divestment subject to penalty for Medicaid eligibility purposes. After signing a lady bird deed, an owner may still sell, gift, mortgage, or lease the property during his or her lifetime, if he or she chooses to do so. The default beneficiary receives the property only if the owner still owns it at time of death. The property receives a step-up in basis at the owner’s death, beneficial for income tax purposes (avoiding capital gain).
During a grantor’s stay in a nursing home on Medicaid, a lady bird deed is helpful to preserve her residence as an exempt asset under Medicaid eligibility rules, and as an inheritable asset that (under present law) avoids a Medicaid estate recovery lien. But the nursing home resident’s income must be used to pay his or her care costs, so it will not be available to defray upkeep and maintenance expenses for the residence and default beneficiaries will have to find another way to cover these expenses during the nursing home stay.
Limitations
Use of a lady bird deed is not a preferred method in some situations, such as when an owner is likely to die leaving a sizable unpaid lien or encumbrance on the property. It may be inadvisable where an owner wishes to leave the property to multiple (more than 2 or 3) default beneficiaries, particularly if they do not get along well with each other. The reason is that the default beneficiaries will have to work together to sell or dispose of the property following the owner’s death, and disagreements could lead to the filing of a partition lawsuit.
A lady bird deed sets up a less flexible arrangement than a trust. It does not allow one person (such as a successor trustee) to sell the property following the owner’s death unless other default beneficiaries give him their power of attorney, and it usually makes no provision for descendants of a default beneficiary who predeceases the donee. However, a grantor may solve these problems by naming as default beneficiary the successor trustee of the grantor’s living trust. When a lady bird deed is used, property taxes will be uncapped upon the death of the donee of the power of appointment, unlike transfers directly into a revocable trust and (after the owner’s death) out of the trust to close family members. This may not be beneficial for property that has appreciated significantly in value over time.
Thank you. Your article is very helpful to me.
Your welcome.
Evicted from a home that I lived in for about 5 years and was given exclusive lifetime use with a ladybird and a trust. After death was evicted from trustee per new changes of trust. Original owner never lived in home. And during eviction all my things were put on on the porch and the street and me and my children lost everything. It was my understanding that I had current beneficiary vested interest. I was given the deed on the date it was signed, I had lived there 8 much prior to getting the lady bird deed. Was to be held in trust for me due to my state and Medicare benefits. Not sure how I lost this
Reply
Kris
on June 27, 2021 at 10:
Based on what you have described, it does sound that something is not up to par. If you were not properly removed, there is a legal action here. I would suggest seeking legal counsel immediately.
I’ve been trying to. I can’t afford an attorney and her attorney just keeps out maneuvering me. And recently have found out that the it was illegal for the plaintive to be listed as the trust. Trustee’s name was not on anything and attorney stated they were the attorney for the trust. However, ownership was still in my mom‘s personal name. Trustee has not wanted her name on anything, she received property outright and has forced the trustee to pay mortgage and condo association fee, sold it, money in the trust, then distributed the profits and allowed to trust to pay all fees while denying the minors any relief. The only thing funding the trust, apparently per her was the loss of the two beneficiaries home. The only one that benefited was her daughter receiving 1/3 of the profits she has money put into an account and then states that there’s a five dollar fee for the account to remain open. Multiple charges of insufficient funds yet it appears what she gives me balance is over 400,000 is refusing to give any distributions until two beneficiaries that received a gift sign a release stating that it is a partial inheritance . Everything I file gets denied or the attorney outsmarting. I’m at a loss.
Sorry, we do not handle such cases at this time. If in the Great Lakes Bay area, you may wish to look at the Saginaw County Bar Association website to find a local attorney or call the State Bar of Michigan.
Thanks very interesting blog!
can a lady bird deed occur if the property already has a mortgage on it?
Yes, but the mortgage obligation will be transferred with the rights to the real property.
If the owner has a life estate in her property and is in a nursing home can Medicaid take the house when when she dies?
Generally no. The rest of the deed is important to evaluate before coming to a complete conclusion.
My house is paid off and in a lady bird deed to my son. How long does it have to be in effect so that Medicare cnsme me reverse that deed?
No time limit in Michigan.
My mom passed on August 8th. I am named on the LBD as the sole grantee. How long do I have to file the LBD at my local assessors? And how do you deal with a HELOC with a balance?
Wow lots happening. There are dealines to keep the PRE or homestead benefit in Michigan. As for the home equity loan, the debt remains on the property and would have to be paid.
I have a home in florida..took off exemption have lady bird deed un mich. Uncapped at taxable value what gives my house un florida will be closing june 14 2021 still farmington hls will not give me my exemption
There is a form you can sign that allows for the exemption to be briefly on two properties if one is being sold.
When completing a lady bird deed in Michigan will I also need to submit as an attachment a copy of the deed to my home. If not what attachments should I sent to the register of deeds along with the ladybird deed I currently have a mortgage on my home. Thank you.
No. You have to have the correct legal description and the proper owners have to sign the deed. Very easy to do.
If you need further assistance please contact Susan Williamson. Sorry the response took so long.
My husband and I are in Michigan and own our home. We have a Revocable Living Trust. We currently have a Quit Claim Deed ready to be activated when we both die which will put our home into our trust. If we get a LadyBird Deed, we are being told to convey our home to the Successors of the Trust (rather than just conveying it directly to the trust itself…and we don’t know why! To us, it sounds like the Successor Trustees would be the beneficiaries. How do they then get the home into the trust to be divided among the beneficiaries we have listed in the trust? Shouldn’t the home be conveyed just to the trust itself? We have 2 children and want the home to be transferred into the trust at our death so it can be sold and then the proceeds from the sale will be divided according to how assets are to be allocated in the trust (for example, 50/50 for each child). What would be the reason to convey it to the Successors of the Trust? And then what is their obligation to make sure the home is put into the trust? What do they have to do? Sign any documents or file anything? We’re confused.
Normally the conveyance is to the Successor Trustees of the Trust you are current trustees of. The legal gymnastics is that the ownership is by the trustees who agree to follow the terms of the trust that directs them how to handle.
This seems similar to the situation Im in. My grandfather was trustee of his trust. After his passing myself and 2 cousins become trustees. The LBD was written to be conveyed from him as trustee of his trust to the family member. Is that a clean transfer?
This would require an examination of the deed and the language on it.
My husband and I purchased my grandfather’s home with my mom. Our taxes are grandfathered in. We are all equal 1/3 owners. She has a ladybird deed set up granting her share to my three siblings upon her death. When that happens,
1) are our taxes upcapped?
2) If we sell the house they get 1/3 of her 1/3? Or do we need a Title with In Common included?
3) What else should I be concerned about?!
Thank you!
I cannot respond fully, as it depends on what State your in and the language on the deed.
Some types of language on deeds will allow there to be no-uncapping. As to the 1/3, again it depends on the deed language.
If you are in Michigan and located around the Great Lakes Bay area, we would be happy to assist you.
By “uncapping tax” are you referring
To yearly property taxes that may have been capped from full market value on homesteader property?
Using lady bird deed, beneficiaries would still receive step up in market value at transfer for capital gains purposes?
Can lady bird deed name remainderman / beneficiaries with different %. I.e. John 70% and David 30% as tenants in common or must it be equal shares? Can you leave it as JTWRS?
Wow, that is a lot of inquires. In Michigan, generally if residential and family members receiving there is no “uncapping”. LBD’s still grant benefit of capital gains avoidance.
My brother did a LBD on his house, in Michigan, to his long time live in girlfriend “Pam”. Pam passed 3 years ago. My brother “Jim” passed early June. He had a girlfriend move in with him a year ago and before he passed willed everything to the new girlfriend “Connie” He has not removed the LBD so does the house go to Pam’s heirs or to Connie? Thank You!
Great question! Would have to see language on the deed. But likely goes tot he family of girlfriend. This is the danger with a LBD. Need to update when someone on it passes or you want to make changes.
Sorry did not respond earlier. Appears to have gone into spam folder.
In MI, if one has a ladybird deed, but chooses to sell the home to move into assisted living. Does that then allow the state or medicare to then tap into her cash assets after sale?
Possibly yes. LBD does not insulate from Medicaid or other governmental programs as you have converted the asset to cash.
Which is better revocable
Trust or a lady bird deed.
Not enough information. If you have assets over $250,000, we normally suggest a trust. But there are many exceptions.
I was a beneficiary of a property through a lady bird deed. My son currently is living in the house. If I create a lady bird deed and make my son a beneficiary can I then file for 100% homestead because he is living at the home?
Nope. He can file for homestead in Michigan, but you cannot as it is not your residence.
Mother wants her home in Texas to be lived in by my husband and I upon her death and not sold. However, she doesn’t want my 2 brothers to feel slighted by directly willing the house to me. Due to the recent death of my father, we now know that division will not be equitable. Would a LBD keep the boys from selling the home without all 3 of us agreeing to it?
Thank you for your question. The use of LBD’s can be different State to State. In general terms, your Mother could give you and your spouse a life estate and then divide it up after your deaths. That is one way of doing it, but there are others. Not sure why you state it would be be equitable. Equitable is different than equal.
I’m in the process of getting a LBD on my parents home. Do I need to wait for that to be completed before I file for Medicaid? My dad will continue to live in the home while my mom is Ann’s assistant living facility.
No.
In the case of a married couple both being listed as grantors and grantees on an Enhanced Life Estate Deed, and two of their adult children also being listed as grantees, what (if anything) happens when only one of the grantors passes away?
Death certificate is generally recorded, making it owned by the one of the Grantors.
If I was the sole beneficiary on the Lady Bird deed, and decide to sell the home, do I have to split any of the money with an estranged sibling?
In Michigan, unless there is an agreement or you agreed orally with your parents to handle the real estate in a certain way, you are typically free to sell. Sibling could file legal steps alleging need for a “constructive trust” to carry out parents intentions, that is for you to sell and divide proceeds. Would be wise to consult attorney before going forward.
If a Lady Bird is setup with 3 siblings being the beneficiaries, what happens if one of the siblings dies?
Is it divided between the two surviving siblings or does the spouse of the deceased sibling although not named in the Lady Bird receive the deceased siblings 1/3rd share?
This scenario is in Florida.
In Michigan, the deceased siblings share would be probated, however, that assumes certain language on the LBD. I would contact Renee Nesbitt in Naples, Florida to see if she can assist.
Regarding a principal residence in
Michigan, is there any advantage of a
LBD over a revocable living trust, as
It relates to the exemption in the
Medicaid eligibility determination?
LBD is best typically, but you should seek assistance of Elder Law attorney.
In Michigan, if a parent had a house in trust that showed up as a trust in the city property search but after it was converted to a lady bird deed it only showed the parent’s name or not also the word trust after the parent’s name, is the house still protected in a trust? If the parent has assets over $250,000, is a lady bird deed a better choice than a trust if there is a child with a disability out of a few children that the parent wants the house to go to after death so that child will not become homeless or needs time to get back on feet before the house is ever sold by siblings?
Generally, the tax reporting information is only as good as the reporter. What is on the deed is what carries the day. Would have to have much more information to say what is best….trust v. LBD. A trust is likely a better tool if there is a child with disabilities. I would strongly urge you to speak with an attorney. If you are in the Great Lakes Bay area, we would be happy to assist. Would suggest Attorney Susan Williamson in our Frankenmuth office. Otherwise, if you email us we can refer you to someone.
Hello,
I’m a trustee for my grandfather’s irrevocable trust. He passed away and has a LBD for a house to go to family member. The LBD was written as his “ name, trustee of his trust” to convey property to the “family member”. He had a revocable living trust when he was alive which became irrevocable after death. Is there an issue with the fact that the LBD is going from him as trustee of his trust(he passed away) to the family member?
Generally, I would say no issue. There could be a need to record some documents to clear up the title.
We have 1home in Michigan, and 1 in Florida, can we put each home in a lbd, and should you have a trust
Yes, to first question. Depends as to second. Need to know more much more as to your intentions, family issues and other assets.
Michigan here! QCD was done between mom and I as tenants in common. Then we did a deed where it went from mom and myself to myself and sister. The life estate and power to convey I assumed was for myself and my mom as the QCD was done first and recorded before the ladybird deed. The language goes between Grantors’ and Grantor’s so plural and singular possessive. Mom passed away and I want to convey the property to my children rather than to my sister but she believes she is a co owner because of the ladybird deed. Is she right?
I just don’t have enough information. The QCD is not always a ladybird deed. An attorney handling real estate should be able to look at both deeds and determine ownership. If you are in the Great Lakes Bay area we may be able to assist.