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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, 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...
Monday, 09 June 2014

Protecting Michigan Cottages and Camps From Medicaid Spend Down and Tax Increases

 

For 30 years our Firm has advised clients on the best ways to title cottages, camps and other non-homestead property.  In those 30 years, the laws that... Read more...

Monday, 09 June 2014

New Uncapping Exemption for Certain Family Members

 

PA 497 of 2012 creates a new uncapping exemption for deeds signed on and after December 31, 2013.  Unfortunately, planning opportunities will be more limited that was hoped.

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

 
Monday, 09 June 2014

Lion Cub Deed Approved by Tax Tribunal: A Great Taxpayer Victory for Michigan Homeowner

 

On December 18, 2013, Lion Cub Deeds were approved by the Michigan Tax Tribunal in Anderson v. Chocolay Township as a technique to avoid uncapping the taxable values on real property taxes.... Read more...

Monday, 09 June 2014

How to Use Jimmo to Advocate for Extension of Medicare Benefits

 

On Jan. 24, 2013, the Federal District Court approved the settlement reached in the class action lawsuit Jimmo v. Sebelius,... Read more...