Michigan Lady Bird Deed Form

How does a Michigan ladybird deed form work?

A Michigan ladybird deed form works by dividing ownership into a lifetime interest (the life estate) and a future interest (the remainder).

A property owner who creates a Michigan ladybird deed typically reserves the life estate—which allows the owner (or life tenant) to continue owning the property for life.

The ladybird deed also identifies at least one other party—called a remainderman or remainder beneficiary—who will receive the real estate outside probate upon the life tenant’s death. The deed may designate multiple remainder beneficiaries, and the remainder beneficiaries may include people, trusts, or organizations.

The life tenant retains lifetime ownership and also reserves substantial powers over the property—including the right to sell, gift, mortgage, or otherwise dispose of the property without the remainder beneficiary’s involvement. The life tenant also has the ability to change his or her mind about the ladybird deed and do something different with the property. These continuing powers over the property are what makes the life estate enhanced.

If the life tenant still owns the property at death, the property transfers to the remainder beneficiary automatically, without the need to probate the property. While the life tenant is still alive, the remainder beneficiary has no vested rights in the property, so the life tenant does not need the remainder beneficiary’s consent to sell or otherwise dispose of the property during life. This feature is what separates an enhanced life estate deed from a traditional life estate deed.

What are the advantages of a Michigan lady bird deed?

Michigan lady bird deeds have several benefits that make them a valuable estate-planning tool for Michigan property owners who want to arrange for an efficient property transfer at death.

• Avoid Michigan probate. Avoiding probate is a chief objective for most people who use Michigan lady bird deeds. A properly drafted Michigan lady bird deed passes the property automatically to the remainder beneficiaries when the life tenant dies—bypassing the complex and often expensive probate process.
• Retained control. Owners generally prefer to keep control of their property while they are still alive. A traditional life estate deed surrenders some of the owner’s power over the property. A Michigan lady bird deed avoids this problem by giving the owner (life tenant) the continuing right to sell, mortgage, or gift the property without involving the remainder beneficiaries.
• Medicaid asset protection. The Michigan Department of Health & Human Services—the agency that administers Michigan’s Medicaid program—has expressly approved the use of lady bird deeds.¹ A transfer by lady bird deed is not considered a “divestment” when calculating the Medicaid penalty period for purposes of qualifying for nursing home care. Property transferred by lady bird deed is not part of the probate estate, so it is not subject to Medicaid recovery after the owner’s death.
• Tax savings. A Michigan lady bird deed does not result in a complete transfer during the owner’s life for tax purposes because the owner retains control over the property. No federal gift tax return is required, and there are no federal gift tax consequences. When the owner dies, the property is included in the owner’s taxable estate—which lets the property qualify for a basis step-up at death. The basis step-up effectively erases any appreciation that has accrued in the property and can save capital gain taxes.
• Property tax benefits.  A Michigan lady bird deed is not considered a transfer of ownership for property tax purposes. The lady bird deed does not result in a reassessment of the property or “uncap” the property’s taxable value.²
• Retained homestead exemption. A Michigan lady bird deed does not affect the owner’s homestead (principal residence) exemption during the owner’s life. Property that qualifies for homestead exemption before the transfer continues to be eligible for homestead exemption after the transfer.
• Reduced legal fees. A living trust provides many of the same benefits as a lady bird deed but requires additional cost and complication. A lady bird deed can accomplish many of the same objectives as a living trust—including retained control during life and probate avoidance at death—without the complication of a living trust.

What is the difference between a Michigan lady bird deed and a traditional life estate deed?

Michigan lady bird deeds are a variation on the traditional life estate deed form. Historically, life estate deeds were the preferred option for transferring property automatically at death. The downside of a traditional life estate deed is that the owner (the life tenant) gives up some control over the property. An owner who uses a traditional life estate deed can sell or otherwise transfer full title only with the remainder beneficiary’s consent.³ The owner cannot alter the life estate deed’s provisions without involving the remainder beneficiary.

A Michigan property owner can use a lady bird deed to avoid the loss of control over the property that comes with a traditional life estate deed. The property still transfers automatically upon the owner’s death, but a lady bird deed’s enhanced feature also gives the original owner the right to change his or her mind without involving the remainder beneficiaries.⁴

What is the difference between a Michigan lady bird deed and a survivorship deed?

A Michigan survivorship deed transfers property to co-owners using a form of co-ownership that has a right of survivorship. Michigan law recognizes two types of co-ownership that provide for a right of survivorship: joint tenancy with right of survivorship or (if the co-owners are married) tenancy by the entirety.⁵

A survivorship deed works with an estate plan by titling real estate in the name of the current owner and a new co-owner. The right of survivorship ensures that a surviving co-owner receives full ownership of the property at the other co-owner’s death—with no need for probate.

Survivorship deeds are relatively simple and inexpensive, but they have a significant downside. A property owner who records a survivorship deed no longer enjoys complete ownership or control over the property. The new co-owner also owns the property when the deed is created, and the co-ownership limits the original owner’s control over the property.

How do lady bird deeds compare to transfers to living trusts?

A deed that transfers real estate to a living trust can sometimes also be an alternative to a Michigan lady bird deed. A living trust allows the transferor to retain control during life and avoid probate at death—as with a lady bird deed. The downside of using a living trust is that they are relatively expensive and complex compared to a lady bird deed. An attorney is often needed to draft the trust instrument and related documents, and a deed is still required to transfer the property into the trust. A lady bird deed can avoid the extra expense and hassle.

How do Michigan lady bird deeds relate to the warranty of title?

The designation of a deed as a lady bird deed (or enhanced life estate deed) deals only with the deed’s estate-planning function (control during life and probate avoidance at death). Other Michigan deeds—including quitclaim deeds, covenant deeds, and warranty deeds—are named after the warranty of title they provide.

Warranty of title is a guarantee the current owner gives to the new owner about the validity and status of the property’s title.⁶ A warranty protects the new owner if there are problems with the property’s title—such as undisclosed liens or prior transfers, errors in the land records, forged or fraudulent deeds, or missing heirs or unprobated wills.

Because a deed’s warranty of title and its estate-planning function are distinct features, a single deed may be appropriately called by multiple names. For example, a deed can be both a lady bird deed and a quitclaim deed.

How can I create a Michigan lady bird deed?

Lady bird deeds have their roots in common law, but the most common type of Michigan lady bird deed form is based on Michigan Land Title Standards.⁷ The Michigan title standards state that a person who owns a life estate and has an absolute power to transfer complete title during his or her life has the legal power to transfer complete ownership.⁸

This standard is important because of the role of title insurance in real estate transactions. The standard mitigates the risk that a Michigan title insurance company will refuse to accept a lady bird deed, as they are explicitly recognized by the Michigan Title Standards.

Every state has its own requirements that apply to all deeds in the state. For this reason, it is important to use a deed form specifically designed for use in the state where the property is located. A Michigan lady bird deed must contain the language needed to create a valid lady bird deed and must meet Michigan’s general deed requirements. These requirements include:

• A valid legal description;
• Vesting language describing the transfer and any warranty of title the deed provides;
• A statement of the consideration, if any;
• Formatting consistent with Michigan’s recording laws and standards;
• The form of co-ownership if multiple remainder beneficiaries are named; and
• The owner’s notarized signature with an acknowledgement form that complies with Michigan law.

Like other deeds, lady bird deeds are valid when signed and delivered and should be recorded as soon as possible with the register of deeds for the county where the property is located.⁹

1. See Mich. DHHS Bridges Policy Glossary, p. 38).
2. See MCL § 211.27a; see also Mich. Dept. of Treasury, Changes in Ownership and Uncapping of Property.
3. MCL § 565.4.
4. MCL § 554.33.
5. MCL §§ 554.44; 565.49.
6. See MCL § 565.151.
7. State Bar of Michigan, Real Property Law Section, Michigan Land Title Standards (6^th ed., 2021).
8. Id., at Standard 9.3.
9. MCL § 565.29.