If you have heard the term “Lady Bird Deed” before, but you weren’t quite sure what it was, don’t worry. You are not the only one. Unlike the Warranty Deed and Quitclaim Deed, which are the two types of deeds that most people are familiar with, a Lady Bird Deed is used as an estate planning and asset protection tool.
When a person signs a Lady Bird Deed, they are giving themselves what is called an “Enhanced Life Estate.” What this means is that you are giving yourself the right to not only live in or occupy the property during your life, but you also still retain all rights to sell, transfer, mortgage, lease or do anything else that you would have ordinarily been able to do prior to signing the deed.
What is the difference then? When you (or, perhaps, you and your spouse) have passed away, the property automatically transfers to the person you conveyed the property to.
What is the benefit of using a Lady Bird Deed? Aside from being a very affordable Estate Planning & Asset Protection tool, there are many other benefits to using a Lady Bird Deed, but we’ll mention just a few:
First, the property avoids probate. As previously mentioned, the moment that you pass away (all grantors of the property on the deed have passed) the property automatically belongs to the person you conveyed the property to. The person that you want to have the property will not need to wait for court approval to receive the property.
Second, the property avoids Medicaid Estate Recovery. If you or your spouse were receiving long term skilled medical care and received Medicaid benefits, you could have a substantial debt at the time you or both of you have passed. This debt can be tens of thousands, and in many circumstances hundreds of thousands of dollars. The state will pursue recovery of this debt, and will often times look to your home as a means of collecting the debt. The Lady Bird Deed transfers ownership at the time of your death in a way that protects the property from the government’s collection efforts. It is important to note that the property remains a countable asset for Medicaid purposes, but if it is your primary residence, you would still maintain that exemption and any other Medicaid exemption you would have ordinarily qualified for. The Lady Bird Deed does not count as a divestment in Medicaids 5 year look back period either.
Third, there are tax advantages to using a Lady Bird Deed as well. You won’t incur any State or County transfer taxes, there will be no federal gift tax, the property will not be “uncapped” for property tax purposes at the time of conveyance, and you won’t lose the step-up in tax basis nor the capital gains exclusion. One tax disadvantage is that the property will still be counted as an asset for federal estate tax purposes, and if applicable to you, it will count as an asset for generation skipping tax purposes.
If you think that a Lady Bird Deed would be beneficial to you and your family, or if you had more questions and would like to discuss them, reach out to T.J. Pierce at 989-317-3989 at DeCloux & Pierce Law, or by email at tj@declouxpiercelaw.com
