Michigan Lady Bird Deeds: Benefits and Things You Might Not Know
As we discussed in our previous blog post, a Lady Bird deed is an estate-planning tool that allows a property owner to retain broad control of real estate during life while naming one or more beneficiaries to receive the property at death. Also called an enhanced life estate deed, it can offer a relatively simple way to transfer Michigan real estate outside probate.
A properly drafted Lady Bird deed lets the owner continue using the property and generally sell, mortgage, or otherwise convey it without the future beneficiaries’ permission. If the owner still holds the property at death, it passes according to the deed.
Main Benefits of Lady Bird Deed
Probate avoidance. A properly prepared deed can pass the real estate directly to the named beneficiaries without probate administration.
Lifetime control and flexibility. The owner can retain the ability to sell the property, keep the proceeds, and change the future beneficiaries through appropriate documents.
Tax considerations. Creating the deed generally does not itself uncap the property’s taxable value. The property may also qualify for other adjustments.
Medicaid considerations. A properly drafted Lady Bird deed may offer certain Medicaid planning advantages under current Michigan rules, including avoiding a transfer penalty when created and generally keeping the property outside estate recovery at death. Still, it does not guarantee eligibility or exempt an otherwise countable asset.
Things You May Not Know About Lady Bird Deeds
1. Not all life estate deeds preserve the same control.
A Lady Bird deed reserves broader powers than an ordinary life estate deed, generally allowing the owner to sell or mortgage the property without the beneficiaries’ permission. The deed’s wording, not just its title, determines whether those powers are preserved properly.
2. Probate avoidance and tax treatment are different
Property can avoid probate while still being included in the owner’s estate for federal tax purposes. That inclusion generally preserves an income-tax basis adjustment at death, which may reduce capital-gains tax when beneficiaries later sell. It does not guarantee a tax-free sale.
3. Beneficiaries do not automatically inherit your property-tax treatment
Creating a Lady Bird deed generally does not uncap the property’s taxable value, but the transfer at death requires a separate analysis. Certain residential transfers to qualifying family members may avoid uncapping if the statutory conditions are met.
4. Backup beneficiaries matter
Do not assume that a named beneficiary’s children will automatically inherit the property if that beneficiary dies before you. The deed should address this possibility by clearly identifying alternate beneficiaries.
5. Insurance and existing debts still need attention
The deed does not erase mortgages or liens, and the owner’s homeowners policy may not adequately cover the beneficiaries after death. Discuss the planned transfer with your insurance agent rather than assuming coverage will continue unchanged.
6. A Lady Bird deed is not a complete estate plan
The deed addresses only the real estate described in it, not your other assets or who manages your finances during incapacity. It can also work alongside a trust, including by naming a trustee as the recipient, but you should coordinate the documents and tax consequences.
Is a Lady Bird Deed Right for Your Michigan Estate Plan?
A Lady Bird deed can preserve lifetime flexibility while allowing real estate to pass outside probate. However, effective planning involves more than choosing beneficiaries—the deed should be tailored to your property, family circumstances, and overall estate-planning goals. Jabbour Law can help you evaluate whether a Lady Bird deed makes sense in your specific situation.
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