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.

When you Need a Trust – Real Property in Multiple States

Revocable Trusts provide a host of benefits to the beneficiaries of a deceased loved one.  Probate is avoided and administration is less cumbersome.  These are nice benefits of a revocable trust; however, some clients feel that these benefits do not outweigh the cost of setting up an estate plan with a revocable trust.

One circumstance that make a revocable trust really needed is having real property in more than one state.

If you have real property in one state, it will be included in your Probate estate.  When your Personal Representative is granted authority to act on behalf of the estate, he or she will be able to transfer or sell the property in accordance with your wishes.

If you have real property in more than one state, the process becomes far more difficult and more costly.  A probate court order from one state is not effective in another.  Therefore, your Personal Representative in Michigan, will not have the legal authority in Arizona or Florida to sell or transfer your property.  It will be necessary to open a probate proceeding in every state in which you own real property.

A revocable trust, into which all of the real property has been transferred will enable your successor trustee to transfer or sell all of your properties in accordance with your wishes without the need to go to court.

What is a “Lady Bird Deed”?

Many individuals would like their family members, usually children, to receive their real property upon their death.  Additionally, they would prefer that the property not go through Probate Court.

Often, they will simply add their children’s names on to the deed; however, this may not be a good idea.  If the children are added as joint tenants, they will have rights in the property and the parent will not be able to sell the property without the permission of the children.

A better solution is the “Lady Bird” Deed.  Another name for this is the Enhanced Life Estate Deed.

This type of deed transfers the property to themselves and their children.  The difference is that they retain (hold back) a life estate and an ability to sell the property at any time.

Why is this better?  The parents still own the property and can sell or give it away at any time without any interference from their children.  If they still own the property at the time of death, the property will pass to the children.

This avoids probate court.  It avoids an increase in the taxable value for property tax purposes (the so called “pop up”) and it avoids capital gains because the children do not receive any value until the parents pass away.  Therefore, the children still get a stepped-up basis for income tax purposes.

For individuals that do not want to have their property in a trust, yet want to avoid Probate, the Lady Bird Deed is a convenient and easy manner to transfer real property to the next generation.

When you Need a Trust – Real Property in Multiple States

Revocable Trusts provide a host of benefits to the beneficiaries of a deceased loved one.  Probate is avoided and administration is less cumbersome.  These are nice benefits of a revocable trust; however, some clients feel that these benefits do not outweigh the cost of setting up an estate plan with a revocable trust.

A circumstance that make a revocable trust really needed is when you have a beneficiary that is disabled or is “special needs”.

Needs based government programs such as Medicaid and SSI, provide for an individual’s food and shelter at a very modest level.  The recipient of these benefits may not, with some exceptions, have assets greater than $2,000.

If you leave such an individual a gift through your Will or Trust exceeding this limit, he or she may be disqualified from his or her benefits.  This unintended consequence would create more harm than the potential good of receiving the bequest.

It is important to leave monies to such an individual through a Special Needs Trust which restricts the distribution of funds to third parties for amenities such as transportation, furnishing, and travel for the disabled individual’s benefit.  In this way, you are able to provide for the individual over his or her lifetime, giving an enhanced lifestyle, while not jeopardizing the governmental benefits.