By: James F. Scales
The use of “Lady Bird Deeds” has become common in Michigan is a way to pass property upon death. The name comes from the mechanism that President Lyndon Johnson used to pass property to his wife, “Lady Bird” Johnson on his death. Some lawyers call these “enhanced life estate” deeds.
Technically speaking, a Lady Bird Deed sets up a type of ownership in which the original owner retains a life estate coupled with an “unlimited power of appointment.” The deed then specifies who will become the owner of the property upon death. In layman’s terms, this works like a beneficiary designation for real estate. This means that the owner retains full control of the property during their lifetime, but upon his/her death it passes to a designated person, without the need for probate. The arrangement also allows the owner to change his/her mind about who to leave their property to, by simply changing the deed.
There are a number of advantages to the use of ladybird deeds. Perhaps the biggest advantage is that the person is not making an irrevocable choice in setting up the property in a “ladybird” deed form of ownership. Ladybird deeds are relatively inexpensive. They avoid probate. They avoid the disadvantages of joint ownership, under which the other joint owners can have the rights of owners of property immediately. Finally, they are a way to avoid Medicaid recovery under current law, a concern which often outweighs any disadvantages of a ladybird deed.
There are some disadvantages. If the goal is to pass property to multiple heirs after death so that two or more people end up being co-owners, then this goal may create disputes. If that is the case, a living trust or will which puts one person in charge of selling the real estate and distributing the proceeds might be the better choice. (If Medicaid estate recovery is an issue, the ladybird deed can designate a trust as the “beneficiary”.) Also, if a person owns multiple properties and decides to change the plan of distribution, it is easier to amend one trust than multiple ladybird deeds.
Our lawyers at Mika Meyers regularly use ladybird deeds in estate planning, and would be happy to discuss this with you. You may contact Jim Scales at 616-632-8047 or firstname.lastname@example.org or Neil Kimball at 616-632-8026 or email@example.com for more information.