Attorney & Mediator
Attorney & Mediator

Lady Bird Deeds – Part I

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What is a Lady Bird Deed? A Lady Bird Deed is a Quit Claim Deed from the owner of property, to him/herself and others – usually close family members.  It reserves a life estate to the owners and the right to sell without asking the permission of the family members. Why do people use them? Real property left to family through a Last Will and Testament will go through the Probate Court process.  Many individuals do not want their family to be forced to use this process due to cost and time expended on the process.    Therefore, owners sought a manner to transfer their property to their family (usually children) without using the probate process. Years ago, it was common for individuals to execute a Deed from themselves to their children – but they would not record it.  It was to be kept with the Will and other documents, to be recorded at the death of the owners.  This often created problems as the deed would be lost or destroyed. The next phase of probate avoidance style deeds was a Quit Claim Deed from the owner to him/herself and the children as joint tenants with rights of survivorship.  This accomplished the goal of having the property pass to the children upon the death of the owner. There were, however, draw backs with this type of arrangement.  The children were actual joint owners during the lifetime of the original owners.  Therefore, when the original owners wanted to sell the property, it was necessary to obtain the signature of every one of the joint owners on the transfer documents.  Additionally, if one of those individuals did not want the property sold, the original owner was blocked from selling. Now, owners are using the Lady Bird Deed.  It accomplishes the goal of removing the matter from Probate Court and it gives the right to sell to the original owner. Under a Lady Bird Deed, the property actually transfers at the death of the original owners.  It therefore gets a stepped up basis for federal tax purposes.  In other words, the children’s “purchase price” is the date of death value, not the amount their parents paid for the property. Additionally, under the Property Tax changes in Michigan, the transfer at death to the children prevents the property from uncapping the property taxes. To summarize – the Lady Bird Deed accomplishes the following:

  • Avoids the Probate process
  • Leaves the property to family without a trust
  • Gives the owner the right to sell during his/her lifetime without interference of children
  • Children get a stepped up basis (fair market value at owner’s death)
  • Property taxes are not uncapped
  • All children have to do is to file a death certificate