Lady bird deeds are an extremely effective estate planning tool. They are very common in Michigan and have a number notable benefits. Here is a list of 5 Benefits of a Lady Bird Deed in Michigan.
1. Lady Bird Deeds Are Inexpensive & Easy to Use
Lady bird deeds provide an easy and cost effective way to give your home or other real property to your heirs upon your death. A lady bird deed is generally prepared with the help of an estate planning attorney. Once drafted, it is signed then recorded with the local register of deeds. The deed serves as a beneficiary designation, of sorts, for your home. The cost of preparing and recording a lady bird deed in Michigan is relatively modest in light of how powerful it can be as an estate planning tool.
2. A Lady Bird Deed Can Minimize Your Risk
Many people think it is a good idea to add their children’s names to their deed. This practice is often viewed as a simple and effective estate planning technique. Nothing could be further from the truth. Putting your children (or other people) on your deed has a tremendous amount of risk. It gives them an ownership interest in your home, exposing it to their creditors, ex-spouses, and more. Here are two articles which outline the risks of adding a child or other person to your deed: Is Putting Your Children On Your Deed Or Bank Account A Good Idea? and 5 Reasons Not To Put Your Child’s Name On Your Deed. Using a lady bird deed is a much better option. It passes your home to your heirs without giving them a present ownership–avoiding the risks of simply adding their names to your deed.
3. Lady Bird Deeds Avoid Probate
A properly drafted lady bird deed will pass your home to your heirs without having to go through probate. Probate is a court supervised process used to transfer title of your assets to your heirs. Probate is very time consuming and can cost your heirs thousands of dollars in legal fees. For more, see our Guide to Probate in Michigan. A lady bird deed is a great way to help avoid probate.
4. Lady Bird Deed and Capital Gains Taxes
One major disadvantage to adding a child to your deed while you are living—opposed to using a lady bird deed— is the tax consequences. Adding a child to the title of your home while you are living will give him or her your cost basis (your purchase price) in the home. If your child sells the house after your death, he or she can incur a capital gain tax for the difference between your cost basis (purchase price) and the sale price. If you instead used a lady bird deed, or other device such as a revocable trust, to convey your home to your heirs, then your heirs will receive a full step-up in cost basis. Eliminating thousands of dollars of potential capital gain tax.
For a full discussion of the role of cost basis and income tax, see our article: Tax Benefits of a Lady Bird Deed in Michigan.
5. Lady Bird Deed and Medicaid
Michigan’s Medicaid Recovery or Estate Recovery Laws allow the State of Michigan to submit a claim in the estate of an individual who received Medicaid benefits. One technique to avoid paying the State of Michigan’s claim is to ensure that there is no probate estate. Properly used, a lady bird deed can play a crucial role in ensuring an estate is not opened.
Michigan Lady Bird Deed
Lady bird deeds are a very powerful tool. They can play a critical role in a comprehensive estate plan. This is particularly true given their modest cost and simplicity. They are not, however, a one size fits all solution. Lady bird deeds do have drawbacks. Deciding whether a lady bird deed is right for you requires a comprehensive review of your estate by a skilled estate planning attorney.
Our law firm is located in Plymouth, Michigan. Our estate planning and trust attorney serves all of Southeastern Michigan and Ann Arbor, including Plymouth, Canton, Northville, Novi, West Bloomfield, Commerce, and Farmington Hills.
Let us help you decide if a lady bird deed is right for you. We offer exceptional legal services in the areas of estate planning, special needs trusts, probate, living trusts, revocable trusts, charitable trusts, medical power of attorney, durable power of attorney, and more!
About the Author: Aaron R. Shahan is an attorney at Atlas Law, PLC. You can find him on Google+ Aaron dedicates his practice to virtually all aspects of estate planning, elder law and probate. We offer fee consultations (248) 773-5555
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