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What’s a Lady Bird Deed?

On Behalf of | Oct 25, 2018 | estate planning and probate, Firm News | 0 comments

If you want to own a home and would like your spouse to inherit it without it having to process through probate or gift taxes being tacked on, then you may want to consider signing a Lady Bird Deed (LBD).

In most other states, a husband or wife can sign a “deed on death” document that seamlessly allows their home to be transferred to their spouse, who’s not listed on it, upon their passing. Such a law hasn’t passed in Michigan yet though.

There is the Michigan Land Title Standard 9.3, which is called “Life Estate with Power to Convey Fee” though. It allows an individual, known as a “donee” to transfer their fee interest in a property to someone else.

With the LBD, a husband or wife may grant over their right to sell, take out a mortgage or lease a property to their beneficiary that will go into effect at the time of their death. Doing so avoids it passing through probate and from changes to the home insurance policy having to be made.

The beneficiary also avoids having to pay taxes such gift and transfer ones provided that the property doesn’t change hands until after the grantor actually passes away. A property that is transferred this way doesn’t lose step-up status under according to Internal Revenue Code 26 U.S. Code § 1014 and 2036(a) either.

This means that the individual who inherits the property, also known as the remainderman, can turn around and sell the home once the grantor dies. If they do, then they won’t be responsible for paying any capital gains taxes for doing so.

Individuals who choose to transfer their property to their beneficiaries this way tend to find peace of mind in knowing that they’re not able to encumber their property while they’re still alive and in possession of it.

Many who sign an LBD do so to protect Medicaid from attempting to recover their assets upon their death. They are authorized to recover any of a decedent’s assets that pass through probate under Michigan Compiled Laws 400, 112h(a).

While there are many positives to signing a Lady Bird Deed, there are many negatives as well. Since each individual’s own financial situation and legacy goals are different, it’s best to speak with a Trenton attorney with more than 25 years of experience in handling such matters.

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