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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.

 
Monday, 27 October 2014

2014 Medicaid Update: Saving Your Assets if You Enter a Nursing Home

 

At a cost of more than $7,000 per month or $84,000 per year, an extended stay in a nursing home can easily wipe out a nest egg that took a lifetime to aquire.

 
Monday, 27 October 2014

Estate Planning for People Without Children

 

People without children often have to fadce these increased risks as they age and pass unless they make a concerted effort to plan.

 
Monday, 27 October 2014

Four Ways to Lose Your Home Under Medicaid

 

THe home is supposed to be exempt if you enter a nursing home and apply for Medicaid.  In reality, the Medicaid program has four ways which can result in the loss of your home:

 
Monday, 27 October 2014

How to Use Jimmo to Advocate for Extension of Medicare Benefits

 

On January 24, 2013, settlement of the class action of Jimmo v. Sebelius in Federal District Court was approved.  Almost a year later, the federal Medicare agency, the Center for Medicare and Medicaid Services... Read more...

Monday, 09 June 2014

Recent Michigan Tax Tribunal Decision

 

The Michigan Tax Tribunal's decision on December 18, 2013 in Anderson v Chocolay Twp resolved several thorny uncapping issues and, in doing so, opened the door for Michigan land owners to engage in estate planning without the fear of uncapping the subject property's taxable assessment.

... Read more...