Lady Bird Deeds: Just what is a Lady Bird Deed?

Levine & Levine

 Frequently clients wish to convey property outright to their children or to their beneficiaries through a revocable trust. But, transferring property into a trust can impact an individual’s Medicaid eligibility and reduces the creditor protections afforded by owning property as husband and wife. The best way to accomplish this lifetime transfer is by conveying the property to the beneficiary while retaining an interest in the property for the remainder of the owner’s life.

The “Lady Bird” deed is a specific type of deed that has become popular in recent years because of its many benefits. The proper name of the deed is the “Enhanced Life Estate” deed. In the deed, grantors convey the property to themselves “for their own life, but names a beneficiary who is to receive the property upon the grantor’s death. The beneficiary can be a named person(s) or trust.

If drafted properly, during the grantor’s lifetime, the grantor may mortgage and even sell the property without involving the ultimate beneficiary. After the grantor’s death, the beneficiary files a certified death certificate with the local county register of deeds. At that time the beneficiary becomes the owner of the property and the value that the new owner receives is the property value as of the date of the grantor’s death.

This Enhanced Life Estate Deed or a Transfer on Death Deed allows the property to transfer on death without probate. Because the original owner still has an interest in the property, a Lady Bird Deed is not considered a “divestment” upon making an application for Medicaid eligibility.

Another way the ladybird deed meets family needs is regarding Michigan’s Medicaid Estate Recovery Program. Through this program, the Michigan Department of Health and Human Services (“MDHHS”) seeks reimbursement from a deceased long-term care Medicaid recipient’s estate for the Medicaid program’s expenditures of that person’s care. Long-term care is costly and therefore the MDHHS recovery claims could be significant.

Under the estate recovery law, as it now stands, the MDHHS may only recover from assets passing through the deceased Medicaid recipient’s probate estate. Therefore, a key part of post-eligibility planning for long-term care Medicaid recipients involves planning to avoid probate with the applicant’s remaining assets, including real estate.

In addition, Medicaid applicants who own home prefer to keep the property exempt from the means test of the Medicaid eligibility determination. To become eligible for long-term care Medicaid benefits, single applicants must have less than $2,000 in countable assets. Single homeowners seeking Medicaid should make sure their homes qualify for the Medicaid homestead exclusion so that the value of the home is not counted as an asset. The Medicaid rules layout conditions the property and its owner must meet so that the home’s value is excluded from the calculation.

The Enhanced Life Estate deed serves as one solution to the competing problems presented by Medicaid, probate transfers, and estate recovery. The deed is also the best means by which to give ownership to children and loved ones without specifically naming them as a co-owner of the property with the grantor.

Therefore, depending on the circumstances of an individual’s estate plan and their specific needs, a specialized deed is one tool in the estate planning toolbox. These deeds must be drafted carefully and every estate plan is different. Make sure to consult with an attorney to assist you with your estate plan.