Attorney & Mediator
Attorney & Mediator

LADY BIRD DEEDS ARE BACK !!

Clients are always interested in how to transfer their property to their heirs without the need to go through probate court at the time of their death. Another goal is to assure that the property taxes on long held real property do not uncap upon the transfer to the next generation.

For a period of time, we have been unable to accomplish both of these goals using a Lady Bird or enhanced life estate deed. This is due to the fact that while the amendments to the property tax laws had provided for transfers by jointly held property and transfers by a revocable trust to pass to the next generation without uncapping the taxes, it did not provide for the same result specifically for enhanced life estate deeds. Because of this, the state of Michigan and all local assessors would uncap property if held under a Lady Bird or enhanced life estate deed when the original owners died.

The law has now been amended to include Lady Bird or enhanced life estate deeds. The application of the law is retroactive to December 31, 2014. Therefore, these deeds are now effective for a transfer to the next generation upon the death of the original owners who die on or after January 1, 2015. The property will transfer without the need for probate and the property taxes will not uncap.

This is great news for clients who are not interested in a trust and have worked out most of their post-death transfers using beneficiary designations and transfers on death. They now can take advantage of a Lady Bird Deed to transfer their property to their children leaving little or nothing to run through the probate process.

Durable Power of Attorneys are not effective after death

A common area of confusion is Durable Power of Attorneys.  It seems that most people know that these are effective during a person’s lifetime to assist with financial and legal affairs.  What is less commonly understood is that the legal effectiveness of this document stops at the moment of death.

For the unknowing, what often happens is that they use the Power of Attorney for mom or dad during their lifetime to help them with paying bills and getting money out of the bank.  Then mom or dad dies.  They continue to go to the bank and get money out of the bank or write checks.  No one says anything to them – so they assume that it is okay.

It isn’t until they attempt to go to close out a bank account or go to sell the real property that they are stopped.  They state that mom/dad has died and they are taking care of business.  They present the Power of Attorney and are told that it is not effective anymore and that they need a Letter of Authority from the Probate Court.

This is when they come to my office, upset and confused.  They don’t understand why the bank or real estate agent would not accept the Power of Attorney when they had been using it for so long.

They are usually quite shocked when I tell them that the bank or broker was correct and that they should have gone to Probate Court immediately after mom/dad’s death and that it really was not proper to have been writing checks on their deceased parent’s checking account relying on the Power of Attorney.

Powers of Attorney are effective during our lifetime only.  Once we have passed away, matters shift.  In order to do business and banking thereafter, it is a matter that is governed by our Wills or Trusts.

Joint Ownership Alone as an Estate Plan – a Costly Mistake

Many individuals, in order to avoid legal fees and avoid their estates going to Probate Court – put all of their assets in joint ownership with other family members.

Does this work?  Sometimes it works just fine.  Sometimes it creates a massive legal and financial mess.

EXAMPLE #1

Mom, a widow, places her home in joint ownership with a son to avoid Probate.   What could go wrong?

• If mom wants to sell the home and move into a condo, her son could refuse to sell – he now has an ownership interest and she needs his agreement

• If son has legal difficulties – a car accident over his policy limits or a business deal gone bad – mom’s home could be a target for creditors.

• If son fails to pay his income taxes, the IRS could lien mom’s property

• If mom and son are in a fatal accident together – who gets the property now?

EXAMPLE #2

Mom, a widow, has three children.  She has three bank accounts and places each one of them in joint ownership with a different child.  What could go wrong?

• One of her children goes through a divorce.  That child must now list that account as an asset when he/she is dividing assets as part of the property settlement process

• Mom uses all of one account, half of another, and doesn’t touch the third.  Does that mean that she wanted one child to get all of the money in the one account? The second child to get the 50% remaining in the second account? And the third child to get nothing?

EXAMPLE #3

Mom, a widow, has three children.  She places all of her assets in joint ownership with one child because she knows that this child will “do the right thing” and share the assets with the other two.  What could go wrong?

• Mom gets sick and arguments break out over the type of care that mom should have – some siblings want her to go to a nursing home and others want to preserve mom’s money – the kids end up not speaking.  Upon mom’s death, the child on the account, angry with the other two announces that legally she is entitled to the money and the house as she is joint – leaving the other two with nothing.

• Mom gets sick. The child on the account cares for mom during her illness and disability without much assistance from the other two.  Upon mom’s death, the child on the account, angry that the others would not assist with mom’s care  announces that legally she is entitled to the money and the house as she is joint – leaving the other two with nothing.

• Mom gets sick.  A child other than the one on the accounts cares for mom during her illness and disability without assistance from the other two.  Angry words are exchanged concerning the appropriateness of mom’s care and the amount of mom’s money that is actually being used up when she is in a child’s home.  Upon mom’s death, the child on the accounts announces that legally she is entitled to the money and the house as she is joint – leaving the other two with nothing. And leaving the child who was the care giver out in the cold.

These are the unintended consequences that occur from joint ownership as an estate plan.  These things really do happen.