Is a Ladybird Deed the Answer to Your Estate Planning Property Questions?
Creating an estate plan that takes into account all the life changes you could possibly experience in the next decades is tough — some would say impossible. When you are trying to decide what to do with your home or vacation property, it can raise a number estate planning property questions. Sometimes the best answer to protecting your authority over your property is a Ladybird Deed.
In this blog post, I will explain what a ladybird deed is and how it works. I will describe how an enhanced life estate can protect you without putting your beneficiaries’ property interests at risk. I will describe when and why you may want to use a ladybird deed as part of your estate plan.
Question: What is a Ladybird Deed?
A Ladybird deed, or "enhanced life estate deed" is an estate planning tool that directs the transfer of real property (land or homes) when you die. At the same time, it protects your right to use and control your property during your lifetime. In some circumstances, a Ladybird deed can have advantages over trusts, joint tenancy, or traditional life estates, making them the answer to your estate planning property questions.
Question: Do You Need a Full Trust if Your Only Big Asset is Your House?
Trusts can be somewhat complicated, and while we do everything we can the ensure our clients' trusts are easy to use, sometimes a trust can be unnecessary. Transferring your real property and financial assets into the trust can take time and patience as you work with banks, financial institutions, and estate planning attorneys to make sure everything is set up properly. The advantage to a trust is it avoids sending your family members to the probate court after you pass away.
However, if the only asset you are trying to protect is a home or other real property, a Ladybird deed can get the job done and avoid probate without the extra complication of a trust. Under Michigan law, an enhanced life estate passes to the "remainderman" — the person you want to own the property after you — automatically upon your death. It is essentially a delayed property transfer, so your spouse, child, or loved one won't need the probate court's permission to take control of the property after you pass away.
Question: What if You Need to Mortgage or Sell the Property While You're Still Living?
Historically, "grantors" (people creating their wills or estate plans) had the option to create a "life estate" in their homes and transfer ownership to their children or intended heirs (the "grantees"). However, a traditional life estate only gives the grantor (original property owner) the right to use the property during his or her lifetime. All other ownership rights were passed to the grantees immediately. But what if you need to mortgage or sell the property while you are still living there?
A Ladybird deed is the answer to this question. As an "enhanced" life estate, it allows the grantor to keep all those financial rights until he or she passes away. Then the entire package of ownership rights transfer to the grantee upon the person's death. This avoids the need to have your adult children sign off on mortgage documents or to bring them into your financial affairs.
Question: Why Shouldn't You Make Your Children Joint Tenants on Your Property?
When people try to do their estate planning on their own, they often decide to deed their real property to themselves and their children as "joint tenants" to avoid the hassle of going to court after the last parent dies. Joint ownership does avoid probate court, but it also ties your ownership of the property to each other person on the title. If your loved ones owe money, get a divorce, face lawsuits, or have to file for bankruptcy, a joint tenancy could put your property at risk.
Because the transfer of property doesn't happen until your death with a Ladybird deed, your loved ones aren't connected to your property while you are still alive. Their interest in your property is "contingent." It depends on your death and continued ownership of the property. Until that time, your loved ones' creditors, and ex-spouses, have no claim to your property.
Question: Will Transferring Your Property Threaten Your Medicaid Benefits?
Michigan Medicaid benefits planning is an essential part of any estate plan. If you think you may need to apply for Medicaid benefits in the next five years, you may want to make a Ladybird deed part of the plan. Traditional real property transfers, like those discussed above, can be considered a divestment or gift for Medicaid purposes. This can threaten your means-tested eligibility, and can make the property subject to the Medicaid Recovery Program after your death. A Ladybird deed is not a present transfer, so it does not have the same Medicaid consequences as other types of transfers.
Whether a Ladybird deed will answer your Medicaid planning questions depends on your situation, your needs, and whether the property would be considered an exempt property otherwise. If Medicaid may be needed in your future, you should create a strategy now that protects your wishes and your property in the future.
A Ladybird deed is the answer to many estate planning property questions, but there is no single right answer for everyone's situation. If you think a Ladybird deed may work for you, or if you need help creating an estate plan that protects your interests, sit down with an experienced estate planning attorney now, and find the best solution for you, your family, and your loved ones.
Rebecca J. Braun, J.D., is an estate planning and elder law attorney for Mobile Legal Services, PLLC, in Southeast Michigan. She can help with estate planning and trust administration. She will travel to clients, free of charge, in Monroe, Oakland, Washtenaw, Wayne, and Southern Macomb Counties. Contact us for an initial assessment.
Categories: Estate Planning