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The Pros and Cons of Lady Bird Deeds

By Robert C. Anderson, Elder Law Firm of Anderson Associates, P.C.

A "lady bird deed", also known as a "transfer on death (TOD) deed", is a transfer to grantees wherein the grantor retains an "enhanced life estate", including the power to sell without the consent of the named grantees (or remaindermen).

The term lady bird deed comes from unsubstantiated lore that President Johnson once used this type of deed to convey land to his wife, Lady Bird. While most of the states which recognize lady bird deeds do so pursuant to statute, Michigan recognizes them pursuant to Standard 9.3 of the Michigan Land Title Standards.

The lady bird deed offers these advantages: a simple and inexpensive method to avoid probate; the grantor can maintain complete control of the property; the grantees receive a stepped-up tax basis upon the grantor's death; and certain Medicaid advantages for the homestead.

The lady bird deed has disadvantages which are significant, especially for elder clients. First, upon death of the grantor, his or her life estate expires, causing the freeze on the taxable assessment to be uncapped. If the property's state equalized value (SEV) is higher than the taxable value, the deed grantees will be stuck with higher property taxes. In contrast, the Michigan Supreme Court in March, 2011 held that joint survivorship property does not trigger an uncapping event when the original owner dies.

Second, for nonhomestead property, the grantor's retained unrestricted control and possession of a life estate in a lady bird deed can have disastrous consequences. The countable value of such land will be 100% and Medicaid's 60-month look-back never starts running.

As for the homestead, lady bird deeds work well under current Medicaid law. As a result of the grantor's retained control and life estate, a divestment penalty should not be imposed and Medicaid's homestead exemption will be captured. Also, a lady bird deed's probate avoidance advantage avoids Michigan's probate-only version of Estate Recovery adopted on July 1, 2011. However, this will not be the case if Michigan adopts an expanded form of Estate Recovery which attaches to life estates. The Michigan legislature is considering such a proposal.

Before deciding on the use of a lady bird deed, clients need to consider its potential property tax and Medicaid consequences.

Friday, 10 May 2013

Law Day Article in Local Paper!

Amid the international celebration of workers on May 1st during the Cold War, President Dwight D. Eisenhower in 1958, declared the first Law Day celebration in the U.S., also on May 1st. In 1961, by joint resolution, Congress designated May 1 as the offical date for celebrating Law Day...

To read the full article, click on the...

Friday, 10 May 2013

Business Profiled in Local Paper!

In elder law, the focus is not just estate planning for the end of life, but also a plan for ong-term and disability care during life. The Elder Law Firm of Anderson Associates, P.C. doesn't just care about planning a client's estate, but also cares personally about the clients themselves.

To read the full article, click on the title... Read more...

Monday, 06 May 2013

Naming a Trust as Beneficiary of an IRA

By Robert C. Anderson, CELA

Ever since the IRS issues its 1997 amendments to the proposed IRS regulations on IRA distributions, naming a living trust as an IRA beneficiary has enjoyed more favorable treatment in allowing stretched-out required distributions.

Tuesday, 15 January 2013

Will Your Taxes Go Up in 2013 Under the New Tax?

By Robert C. Anderson, CELA

The American Taxpayer Relief Act of 2012, signed into law on January 2, 2013 to avert the fiscal cliff, will have a profound and permanent effect on our taxes.   Will Your Taxes Go Up In 2013 Under the New Tax?

Monday, 26 November 2012

VA Aid and Attendance Helps Veterans and Spouses Pay for Home Care and Assisted Living

By Robert Anderson, CELA

One of the U.S. Department of Veteran"s Affairs (VA) best-kept secrets, and an excellent source of funds for long-term care (at home, an assisted living facility, or nursing home), is the VA's Improved Pension program for Read more...