How a Michigan Lady Bird Deed Form Works
A Michigan lady bird deed form allows a person to retain control over Michigan real estate during his or her life and automatically transfer the real estate at his or her death. The property transfer occurs automatically at the prior owner’s death, avoiding probate.
Michigan lady bird deeds work by dividing ownership into lifetime and future interests. When a person creates a lady bird deed, she transfers property to herself for the rest of her life. This creates the lifetime interest, called a life estate. The person who holds a life estate is called the life tenant.
The deed also identifies at least one other party—called a remainderman or remainder beneficiary—to inherit the real estate at death. The life estate deed may designate multiple remainder beneficiaries, and the remainder beneficiaries may include people, trusts, or organizations.
During the life tenant’s life, the life tenant retains control of the property. This control includes the right to sell, gift, mortgage, or otherwise dispose of the property without the life tenant’s involvement.
At the life tenant’s death, the title transfers to the remainder beneficiaries. The transfer happens automatically, without the need to probate the property.
Michigan is one of only five states that recognizes lady bird deeds. The other states include Florida, Texas, Vermont, and West Virginia.
Other Names for Michigan Lady Bird Deeds
Although this deed is most commonly known as a lady bird deed, the technical name is enhanced life estate deed. The deed is “enhanced” in the sense that, unlike a traditional life estate deed, it provides the life tenant with retained control over the property. These deeds are also called ladybird deeds, with no space between “lady” and “bird.”
Key Term: Lady Bird Deed. The term lady bird deed comes from a fact pattern used by Florida attorney Jerome Ira Solkoff in his teaching materials. Solkoff would use fictional characters to illustrate the use of this type of deed. One character was former United States President Lyndon Johnson’s wife, Claudia Alta “Lady Bird” Johnson. As Solkoff popularized this type of deed, people began to refer to it as the lady bird deed or ladybird deed instead of the technical name, enhanced life estate deed.
Benefits of Michigan Lady Bird Deeds
Michigan lady bird deeds have several benefits that make them ideal planning tools for Michigan property owners that want to transfer real estate at death without going through probate.
Avoiding Michigan Probate. Most people that use Michigan lady bird deeds do so to avoid probate. A properly drafted Michigan lady bird deed will pass automatically to the remainder beneficiaries on the death of the life tenant, without the need to probate the property. Many benefits described below—such as tax savings and Medicaid planning—depend on the probate avoidance feature.
Retaining Control. Given a choice, most people would prefer to keep control of their property while they are still alive. As discussed below, traditional life estate deeds forfeit control. A Michigan lady bird deed avoids this problem by giving the owner (life tenant) retained control 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 that administers Michigan’s Medicaid program—has expressly approved the use of lady bird deeds (see p. 37 of Bridges Policy Glossary). Because property transferred by lady bird deed is not part of the probate estate, it is not subject to Medicaid recovery after the owner’s death. 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.
Saving Taxes. Because a person who creates a Michigan lady bird deed retains control over the property, the transfer is considered incomplete for tax purposes during the owner’s lifetime. No federal gift tax return is required, and there are no federal gift tax consequences. On the original owner’s death, the property is included in the owner’s estate, qualifying the property for a basis step-up at death. This basis step-up effectively erases any appreciation that has accrued in the property and can save capital gain taxes.
Retaining Homestead Exemption. Because a Michigan lady bird deed does not transfer ownership until death, it does not affect the owner’s homestead (principal residence) exemption. Property that qualifies for homestead exemption before the transfer continues to be eligible for homestead exemption after the transfer.
Saving Property Taxes. A Michigan lady bird deed is not considered a transfer of ownership for property tax purposes. This means that the transfer will not cause a reassessment of the property or trigger an “uncapping” of the taxable value of the property.
Saving 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 retaining control during life and avoiding probate at death—without the complication of a living trust.
Relationship of Lady Bird Deed Form to Warranty of Title
The designation of a deed as a lady bird deed (or enhanced life estate deed) deals exclusively with the estate planning feature (control during life and probate avoidance at death). Other deeds are named after the warranty of title they provide. These types of deeds include quitclaim deeds, covenant deeds, and warranty deeds.
Because the names for these kinds of deeds are based on different 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.
Comparison of Michigan Lady Bird Deeds to Traditional Life Estate Deeds
The Michigan lady bird deed form is a spin on the traditional life estate deed form. Regular life estate deeds have historically been the go-to instrument for transferring property automatically at death. But traditional life estate deeds have a significant drawback: Loss of control. A person who conveys property using a conventional life estate deed cannot change her mind without involving the remainder beneficiary.
Example: Ashley creates a conventional life estate deed that transfers her home to Ashley as the life tenant Brett as the remainder beneficiary. The next year, while Ashley is still alive, she decides that she wants to sell her home and buy a different one. Because Ashley used a traditional life estate deed form, she cannot sell her home without Brett’s consent. If Brett is unwilling or unable to sign (due to disability for example), Ashley cannot transfer the property.
In this scenario, most people prefer to retain control of property during life. This loss of control is a significant reason life estate deeds are rarely used. Lady bird deeds fix this problem. Like a traditional life estate deed, a lady bird deed automatically transfers property at death. But the enhanced feature of a lady bird deed also gives the original owner the right to change his or her mind without involving the remainder beneficiaries.
Comparison of Michigan Lady Bird Deed to Living Trust
Sometimes a living trust can be an alternative to a Michigan lady bird deed. Like a lady bird deed, a living trust allows the transferor to retain control during life and avoid probate at death. But living trusts are, by comparison, relatively expensive. An attorney is often needed to draft the trust instrument and related documents, and the deed is still required to transfer the property into the trust. A lady bird deed can avoid this expense and hassle.
How to Create a Michigan Lady Bird Deed
Although lady bird deeds have their roots in common law, the most common type of Michigan lady bird deed form is based on Michigan Title Standards (6th Edition), available on the Michigan state bar’s website. Standard 9.3 states:
The holder of a life estate, coupled with an absolute power to dispose of the fee estate by inter vivos conveyance, can convey a fee simple estate during the lifetime of the holder. If the power is not exercised, the gift over becomes effective.
This standard is important because of the role of title insurance in real estate transactions. As a practical matter, whether a deed is valid depends on whether a title insurance company will recognize the deed. The reason that lady bird deeds are not used in other states is that title insurance companies in those states don’t recognize them. This is not a problem in Michigan since the Michigan Title Standards explicitly recognize lady bird deeds.
Michigan lady bird deeds must meet the requirements of other deeds. These requirements include:
Like other deeds, lady bird deeds are valid when signed and delivered and should be recorded as soon as possible.
When preparing a Michigan lady bird deed, it is important to use correct language and format. Failure to do so could cause additional recording costs or refusal to register the deed. In some situations, improper drafting can invalidate the transfer or require costly court proceedings to straighten out title issues. The lady bird deeds prepared by our Deed Generator were designed by attorneys to meet all Michigan requirements.