Using a Lady Bird Deed to Transfer Real Estate at Death

As a Michigan resident, you have the option of using an enhanced life estate deed, commonly known as a “lady bird deed,” to transfer real property upon your death without going through the probate process. This legal instrument allows you to maintain control over your property during your lifetime while designating beneficiaries to inherit the property automatically when you pass away.

A lady bird deed grants you a life estate in the property, meaning you retain full control of the property during your lifetime. In the document, you designate beneficiaries who will receive the property upon your death and modify beneficiaries at any time. Nothing further needs to be done to accomplish the intended transfer of ownership, which occurs automatically upon your death

Here are the main benefits of utilizing a lady bird deed:

• Bypassing probate — The beneficiaries avoid the lengthy and costly probate process, enabling them to inherit the property quickly after your passing.
• Retaining control — You retain full rights to the property during your lifetime, including the ability to live in, mortgage or sell it. 
• No gift tax — Because no transfer of the property occurs during your lifetime, a lady bird deed does not incur gift tax liability, which can be a considerable financial savings for beneficiaries. 
• Preserving Medicaid eligibility — Transferring the property by a lady bird deed is not counted as a divestment for purposes of calculating the Medicaid penalty period. This lets you claim benefits for long-term care. Moreover, Medicaid cannot recover benefits from the property.
• No property tax or capital gains tax implications — Creating a lady bird deed is not considered a transfer of ownership and so does not involve a reappraisal of the property’s taxable value. Upon your death, the property qualifies for a basis step-up, which erases any appreciation in the property and so eliminates capital gain tax.
• No management required — Once the lady bird deed is properly created, there is no need to do anything further to ensure the property passes to beneficiaries.

To achieve these advantages, a lady bird deed needs to be drafted correctly and accurately. An experienced Michigan estate planning attorney can provide you with essential guidance tailored to your specific situation, draft the documentation in compliance with state laws and address potential issues regarding specific beneficiary designations. An attorney can also assist you with related matters, such as future property taxes and Medicaid planning.

At Otlewski & Maloney, P.C.  in Rochester Hills, we provide Michigan residents with effective assistance in all aspects of estate planning. Call us at 248-759-5641 or contact us online to set up an appointment.