Sumner PC & Associates
Lady Bird Deed Michigan Lawyers
Our Lady Bird deed Michigan lawyers with over 40 years of experience in creating estate plans. We have successfully assisted hundreds of clients with lady bird deeds and estate planning. Contact our Michigan Estate Planning lawyer if you’re looking to update your estate plan, will or trust or lady bird deed.
What is a Lady Bird Deed in Michigan?
A Lady Bird deed is one type of an estate planning document that can help ensure peace of mind, preserve your estate, and pass along your legacy. This deed is a written document necessary for legal transfer of ownership in real estate. A Lady Bird deed allows the owner of real estate to appoint a beneficiary of the real estate upon the owner(s) death.
What makes the Lady Bird deed unique is that the owner retains lifetime ownership and control of the property, and can sell or borrow against the property during their lifetime. Upon the owner(s) death, title to the property automatically passes to the beneficiaries appointed by the owner in the Lady Bird deed.
This arrangement prevents the title of the property from lapsing upon the owner’s death, and avoids the need for Probate, as well as several other benefits.
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Lady Bird Deed Frequently Asked Questions
- How does a lady bird deed work in Michigan
- Is a lady bird deed legal in Michigan
- What is the fee (cost) for a Lady Bird deed in Michigan?
- What are the benefits of a lady bird deed?
- What are the disadvantages of a Lady Bird deed?
- How long is the duration/covered period of a Lady Bird deed?
- How does a lady bird deed affect taxes?
- Who does a Lady Bird deed protect?
- Can a Lady Bird deed be revoked?
- When is a Lady Bird deed a good idea?
- Does a Lady Bird deed supersede a will?
- What happens when one person listed on a Lady Bird deed dies?
How does a Lady Bird deed work in Michigan?
While nothing compares to the insight and guidance of an experienced estate planning attorney, you should understand some basic information about the estate planning process. When you die, you typically must go through probate and pay estate taxes. Probate is a formal court process where your assets are itemized, your debts are paid, and your remaining property is distributed to your heirs. Unless your estate is very small, a probate judge will oversee this time-intensive and costly process.
However, a skilled estate and wills lawyer can help avoid probate court proceedings, minimize estate taxes, and still distribute your assets according to your wishes. Your estate plan will vary, depending on your financial situation, family, and long-term goals. For example, the parents of a young child will have very different goals (such as designating a guardian and caring for the child ’s physical and emotional needs) than those of a senior citizen who is concerned about his or her end of life planning and estate tax burden.
Is a Lady Bird deed legal in Michigan?
Yes, Michigan is one of a few states that recognize a Lady Bird deed. This deed is used as a method of transferring real estate, upon the death of the property owner. Additional states that recognize a Lady Bird deed include Florida, Texas, North Carolina, Vermont, West Virginia. Also, some states have similar deeds called “Transfer-on-death deed” and “beneficiary deeds”. Legal authority for Lady Bird deeds rest in Standard 9.3 of the Michigan Land Act, which supports a deed transfer that provides a power of appointment to the property owner which allows for beneficiaries, after the owner’s death.
What is the fee (cost) for a Lady Bird deed in Michigan?One major benefit of a Lady Bird deed is the low cost compared to the alternative, such as working through probate court. The cost for a Lady Bird deed in Michigan can vary, generally less than $500. Keep in mind, this document takes additional attorney time when drafting the document, as the individual circumstance(s) and the appropriateness of the deed should be evaluated by an Estate Planning attorney. It will also take additional time to discuss and determine the beneficiaries (remainderman) and how they should hold title after the owner’s death.
What are the benefits of a Lady Bird deed?
Benefit #1 A Michigan Lady Bird Deed allows you to avoid probate court.
If a person passes away with real estate titled in their name, the property title must go through the State of Michigan Probate Process. This process is administered through the county court where the person lived. The Probate Process typically takes approximately nine to fourteen months to complete and can cost up to 4-8% of the estate’s value. By using a Lady Bird deed, a person can avoid this process and thereby avoid the delays and cost of Probate Court, regarding the property.
A typical situation could be Dad (Bob) and Mom (Sally) use a Lady Bird deed to transfer their home from themselves (Bob & Sally), back to themselves (Bob & Sally) for their lifetime. After both of their deaths, the remainderman (their children Jack and Jill) are the beneficiaries. All the children need to do is to record their parent’s death certificate with the county register of deeds. However, during either of Bob or Sally’s lifetime, they could have sold the property and kept the money or borrowed against the property.
Benefit #2 A Michigan Lady Bird Deed protect the owners home from the state’s Medicaid Estate Recovery Program.
If an individual uses Medicaid benefits during their lifetime, the state that provides benefits to the owner has the right to receive reimbursement funds from the owner’s estate after their death. However, the Lady Bird deed avoids this recovery cost in Michigan because Michigan’s Medicaid Estate Reimbursement Program only requires probate reimbursement. Because the deed transfer avoids probate, the property avoids Medicaid recovery.
Benefit #3 A Michigan Lady Bird Deed allows beneficiaries a Step Up in tax basis, regarding Capital Gains tax upon sale.
When a person(s) purchases land, their cost is considered to be the “basis” for the value of that asset, for tax income tax purposes, not property tax purposes. Additional improvements can increase this basis. However, when the property is sold, and the owner experiences in increase in the value and yields more than what was paid, the owner undergoes a gain equal to the spread between their basis (what they paid for it) and what they sell it for. This spread is called a capital gain and it is taxed to the owner after sale of the property on their Federal & State income tax forms. (Primary Domicile has certain exclusions, with exceptions)
With a Lady Bird Deed, the beneficiaries get what is known as a step-up in basis to the value of the property at the time of the owner’s death.
A typical example is: Dad & Mom buy the property in 1990 for $100,000 and then the property sells in 2020 for $400,000, they will have a $300,000 capital gain. With a Lady Bird Deed, the beneficiaries get a step up in basis for income tax purposes to the current value. So, when the beneficiaries sell the property in 2020, their basis is now $400,000 and the property sells for $400,00 and they have a $0 gain and no capital gains tax!
Benefit #4 A Michigan Lady Bird Deed Does Not Uncap Property Taxes, and No Property Transfer Affidavit Needs to Be Filed.
Typically, property taxes are uncapped when there is a “transfer of ownership”, per the Michigan Department of Treasury. However, the exception is the Lady Bird Deed, because the Lady Bird deed does not transfer the property but merely creates a power of appointment and provides a gift in default.
Benefit #5 A Michigan Lady Bird Deed Preserved Medicaid Eligibility
In Michigan, Medicaid considers your assets for the purpose of Medicaid eligibility. However, your Homestead is typically not considered as an asset for Medicaid eligibility purposes, to a certain extent. Using a Lady Bird deed for your homestead should not affect your Medicaid eligibility because you reserve the rights of ownership and the transfer is not treated as a completed gift.
However, Medicaid and the Deficit Reduction Act of 2005 have created a “look back period” and transfers made during that period may create divestment penalties if not property structured. It is important to consult an Elder Care Attorney about your specific situation and the Medicaid rules. It is strongly advised that you do not attempt doing a Lady Bird deed on your own.
Benefit #6 A Michigan Lady Bird Deed Allows You to Preserve Your Homestead Rights and No Transfer Taxes Due
This major benefit allows you to preserve the Homestead Right on your home for Property tax purposes. This means that you will not lose your Homestead exemption on your real estate property tax and taxes will not increase due to a change in ownership on the Deed. In addition, the State of Michigan Treasury will not pursue or collect any property transfer taxes. Michigan has a tax on the transfer of real property equal to ¾ of 1% of the sale price and each county has their own transfer tax.
Benefit #7 A Michigan Lady Bird Deed Provides Creditor Protection for your heirs/beneficiaries
A Lady Bird deed provides creditor protection to beneficiaries. Unlike other common transfers in real estate, a Lady Bird deed does not provide the beneficiary any incidents of ownership in the property until the owner’s death.
Benefit #8 A Michigan Lady Bird Deed Avoids Transfer Tax for Gift Purposes
Since the execution of the Lady Bird deed is not an actual transfer of ownership, there is no gift for federal gift tax purposes. At the owner’s death, the default beneficiaries take the deceased owners “unexercised power of appointment” and it merges with the beneficiary’s remainder interest to create a full ownership interest in the beneficiaries. Because the Lady Bird deed does not vest incidents of ownership to any third party, it is not a considered a gift.
What are the disadvantages of a Lady Bird deed?
- Preparation of a Lady Bird deed has greater expense than a Warranty or Quit Claim deed, as this deed is more complex to a specific situation and would require the direction of an experience estate planning attorney.
- Unexpected circumstance(s), such as the death of the Beneficiary, could complicate the process. In a Lady Bird deed, the default beneficiary is named in the deed; however, it is difficult to provide for an alternative beneficiary in the event the current beneficiary predeceases the life tenant.
- Your default beneficiaries cannot inherit your title insurance. This may confound understanding the proper course of distribution. Standard title insurance policies (insurance that covers the title of the property) will cover beneficiaries under a will or trust, but typically do not cover persons who receive a gift or real property.
How long is the duration/covered period of a Lady Bird deed?For Life! In Michigan, one major advantage of a Lady Bird deed grants the owner full control over the property during their lifetime, i.e. the owner still has the right to sell or borrow against the property. As long as the owner(s) are alive and have the capacity to revise legal documents, the Lady Bird deed can be changed, revoked or terminated by the owner.
How does a Lady Bird deed affect taxes?
A Lady Bird did will not uncap or affect your property tax and does not increase your property’s taxable value. The Lady Bird deed does not transfer until the owner’s death and therefore, since there is no transfer until death, the property tax is not uncapped.
Who does a Lady Bird deed protect?
A Lady Bird deed is an estate planning tool used to protect the owner’s estate from probate and passes real estate to designated beneficiaries upon the owner’s death. It protects the owner’s beneficiaries from probate court and the probate process. Additionally, the deed also preserves Medicaid eligibility, the owners homestead exemption, and several other legal benefits.
Can a Lady Bird deed be revoked?
Yes, a Lady Bird deed can be revoked, another great advantage of this tool! Since a Lady Bird deed allows the owner to maintain full control during their lifetime, as long as the owner is alive and has the capacity to revise legal documents, the Lady Bird deed can be modified, revoked or terminated by the owner.
When is a Lady Bird deed a good idea?
When estate preservation is your priority, a Lady Bird deed can be a useful and cost effective tool to transfer real estate to beneficiaries upon death. The advantages are numerous and many are listed above; nonetheless, it does not take the place of a Last Will & Testament or a Living Trust.
Does a Lady Bird deed supersede a will?
Yes, a Lady Bird deed takes precedence over a Last Will & Testament. A Lady Bird deed will transfer at death, automatically, to the beneficiaries on the deed, regardless of language in the Will or Living Trust.
What happens when one person listed on a Lady Bird deed dies
If one of the current owners of the property dies, the remaining owner(s) continue to own the property and continue to have the power of appointment. After all current property owners are deceased, the property will pass to the remaining beneficiaries.
If one of the beneficiaries die, the beneficiary designation language in the Lady Bird deed will mandate how ownership of the property will remain, either A.) tenants-in-common or B.) tenants with joint rights of survivorship. If there is only one beneficiary or two or more people own as tenants-in-common, their respective share(s) go to that beneficiaries’ estate. However, if the deed lists the beneficiaries as joint tenants with full rights of survivorship, then only the surviving beneficiary takes the title as owner.
Contact our Estate Planning Attorney Today
Attorneys at Sumner & Associates, P.C. are always tracking the latest developments in probate and estate planning. Contact our experienced Michigan Estate Planning attorneys if you need an update to your will, trust or estate plan. We also offer free initial consultations and flat-rate fees for some services. Call us today for more information, or to request a free case evaluation. We can conveniently meet either online, via telephone, or by visiting our Rochester Hills, Clarkston, Clinton Township, or Novi law offices.