One of the most powerful planning tools for a Michigan estate planning attorney is a Lady Bird Deed? What is a Lady Bird Deed? A Lady Bird deed is a type of deed that avoids probate and can protect against estate recovery.
Typically, unless you are utilizing a Castle Trust™, then the Lady Bird Deed (which yes, is named after Lady Bird Johnson), would be the best route to go.
You would want to use a Lady Bird Deed instead of a Quit Claim Deed. You would want to use a Lady Bird Deed instead of deeding directly to a revocable living trust.
What about a Quick Claim Deed/Quit Claim Deed?
What many people refer to as as Quick Claim Deed is in reality a Quit Claim Deed. There are really only two types of deeds in the world, the Quit Claim Deed and the Warranty Deed.
The only difference between the two is that the Warranty Deed warrants that the grantor or person putting the deed actually has title and there are no tax liabilities on the property.
What many people refer to as a Quit Claim Deed is the strategy we like to call the deed in the drawer trick.
The deed in the drawer trick is when you sign a Quit Claim Deed to a living trust or to children, but don't record the deed until you've passed away. The beneficiaries find the deed with the estate planning documents and then go and record the deed at that time.
There are a few inherent problems with this.
First, by adding the beneficiaries, even though the deed is not recorded, you are taking on the liability of the people you've added to the deed. If you name your daughter and she get's divorced, you may have to defend your home in court.
Second, it can create tax liabilities through the loss of step-up in basis plus create tax problems at the city assessor's office. Property transfer affidavits should be recorded with 45 days of signing the deed.
Third, what happens if the document is lost? Your loved one will then have to go through the probate process.
Now you might be asking, what about a trust?
What about deeding the property directly to a trust?
If you Quit Claim Deed a property directly to a trust, you are losing a form of asset protection the state of Michigan has granted married couples (if you are married, of course).
Michigan has granted married couples Tenancy by the Entireties, which is similar to Joint Ownership with Rights of Survivorship. Basically, if one spouse passes it goes to the survivor.
The state of Michigan has granted asset protection to married spouses, where if one spouse were to be sued, the other spouse, if the property is jointly owned, would be able to keep the house.
However, if you deed it directly to a revocable living trust, you destroy that asset protection.
This is why you should not deed your home to a revocable living trust if you are a married and living in Michigan.
What about a Castle Trust™?
A Castle Trust™ might be a step up above a Lady Bird Deed, depending on your goals. A Castle Trust is a type of trust that avoids probate, protects the beneficiaries and most importantly, builds in asset protection for you, protecting you from lawsuits and the devastating cost of long-term care.
While the Lady Bird Deed will avoid Medicaid and Estate Recovery as long as you keep it as a house, what happens if you want to sell the home to help pay for assisted living or independent living? The Lady Bird deed would not protect you in that scenario because you are turning exempt assets into countable.
Instead a Castle Trust™ may be a better solution, because it could protect the proceeds of the sale.
In Summary About the Lady Bird Deed
A Lady Bird Deed is a great tool to avoid probate and avoid estate recover/Medicaid Spend-down in Michigan as long as your plan on keeping the home a home. If you are looking to sell the home while alive, then maybe you should consider a Castle Trust™.