It’s a funny name for a legal document, but the benefits a ladybird deed offers are seriously worth considering. What is a Lady Bird deed, and how might it fit into your estate plan?
A ladybird deed (also known as an enhanced life estate deed) is a way to convey real property. Using this type of deed, the property owner (grantor) can transfer their real estate to another person (remainder beneficiary) upon their death, while maintaining full control of the property during their lifetime.
You might be asking yourself, “If you want someone to have your property after your death, why not just leave it to them in your will, or make them a joint owner during your lifetime?” Those are certainly options, but having a ladybird deed as part of your estate plan may offer advantages over both.
Problems with Other Forms of Property Transfer
To understand why a ladybird deed may be superior to transferring property through a will or joint ownership, it’s important to know what those processes involve.
Leaving Property in a Will
When you leave someone property in a will, you retain control of the property during your life. You can sell it, mortgage it, or decide to change the beneficiary. You don’t need to ask anyone’s permission.
On your death, the property is part of your probate estate, which is a problem if you want to avoid probate. What’s more, if you need care in a nursing home during your lifetime and apply for Medicaid benefits, your property may be subject to Medicaid estate recovery after your death as part of your probate estate. That means the state Medicaid agency may recoup some or all of the benefits they paid for long-term care on your behalf. In other words, your intended beneficiary may not get your property because the government may have a claim to it.
Lifetime Transfer or Joint Tenancy
You could always choose to transfer the property during your life, either by giving it outright to your intended beneficiary or making them a joint tenant with rights of survivorship, so that they would automatically assume full ownership upon your death. Doing so would keep the property out of your probate estate. But those options carry risks as well. In a joint tenancy with right of survivorship, you no longer have full control over the property, and you cannot unilaterally remove another joint owner if you become unhappy with their actions. (If you have transferred the property outright, you retain no control over it at all.)
Even if you trust the other person to look out for your interests, the property could still be vulnerable. If they have debts or liabilities and have a legal judgment against them, their creditors can reach their assets—which now include the real property they jointly own, thanks to you. In addition, there may be tax consequences associated with these methods of transferring property. And if you need to go into a nursing home and apply for Medicaid benefits, these transfers may be subject to the “Medicaid look-back period.”
Ordinary Life Estate
There’s also a way to transfer property called a life estate. A regular life estate gives you, the grantor, the right to occupy, control, and use property during your lifetime, with ownership of the property going to a remainder beneficiary after your death.
The property does not become part of your probate estate, and the remainder beneficiary has no control over the property during your lifetime. But you lose flexibility and control: you can’t transfer or mortgage the property without the remainder beneficiary’s agreement. Property transferred through an ordinary life estate may also be subject to Medicaid estate recovery.
Benefits of a Ladybird Deed
Compared to these options, a ladybird deed provides you, the grantor, with much more flexibility, control, and protection. A ladybird deed (enhanced life estate deed) means that you have full ownership rights until your death, unlike with an ordinary life estate. If you want to sell or mortgage the property or even change the remainder beneficiary, you can do so without the need for anyone else’s permission.
Other benefits of a ladybird deed include:
- Keeping the property out of probate
- Avoiding Medicaid estate recovery in most cases (this depends on each state’s rules)
- No gift tax implications when the enhanced life estate is created
- Protection from the remainder beneficiary’s creditors (but not the grantor’s own creditors)
A ladybird deed is also relatively simple to create, making it an economical option.
Why Don’t More People Make Use of Ladybird Deeds?
Since ladybird deeds have so many advantages, you may wonder why more people don’t make use of them. One reason is that ladybird deeds are only available in a handful of states, including Michigan and Florida, so they are simply not available to most people.
If you live in a state that allows the use of ladybird deeds, and you wonder if you should use one as part of your estate planning, the best thing to do is to speak to an experienced estate planning attorney. An attorney will review your goals and objectives with you and help you clarify whether a ladybird deed, or another estate planning tool like a trust, is best for your needs.
Work with Experienced Estate Planning Attorneys
The knowledgeable estate planning attorneys at Barron, Rosenberg, Mayoras & Mayoras help individuals who need to make or update an estate plan. Schedule a consultation today by calling (248) 213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.