Passing a home to the next generation usually means either a will that still goes through probate or a trust that takes real effort to set up. Michigan recognizes a third option that lets a homeowner keep full control during life while avoiding both of those outcomes.
What This Deed Actually Does
An enhanced life estate deed, commonly called a Lady Bird deed, allows a Michigan property owner to name a beneficiary who receives the home automatically at death, without the property passing through probate. The Michigan Supreme Court confirmed this tool’s validity in Department of Health and Human Services v. Rasmer, describing it as an estate planning tool used specifically to avoid probate.
Why It Is Called Enhanced
A standard life estate deed restricts the original owner from selling, mortgaging, or changing their mind about the property without the beneficiary’s consent. An enhanced life estate deed removes those restrictions entirely, letting the original owner sell, refinance, or name a different beneficiary at any point during their lifetime without needing anyone else’s permission.
How This Deed Interacts With Medicaid Planning
Because the property remains fully under the original owner’s control during life, executing this deed is not treated as a disqualifying transfer for Medicaid eligibility purposes. And because the property passes outside the probate estate at death, it also generally falls outside the reach of Michigan’s Medicaid estate recovery program, which otherwise can claim assets from a probate estate to recoup long term care costs.
The Property Tax Advantage Many Families Miss
Transferring real estate to a new owner in Michigan typically triggers an uncapping of the property’s taxable value, often resulting in a significant property tax increase. Because this deed is not considered a completed transfer until the original owner’s death, and because the eventual transfer to a close relative can qualify for an exception, property taxes often stay capped rather than jumping to full market value.
The Step Up In Basis At Death
Because the property remains part of the original owner’s taxable estate for federal tax purposes despite the deed, the beneficiary generally receives a stepped up basis equal to the property’s fair market value at the time of death. Gudeman & Associates, P.C. walks clients through this tax advantage as part of every deed drafted, since it is easy to overlook. This can substantially reduce or eliminate capital gains tax if the beneficiary later decides to sell the property.
Situations Where This Tool Is Not Enough On Its Own
This type of deed only covers real estate, not bank accounts, vehicles, or other assets, and it may not fit every family’s situation:
- Multiple beneficiaries who may disagree about what to do with the property
- A beneficiary who receives means tested government benefits that could be affected
- Concerns about protecting an inheritance from a beneficiary’s creditors or divorce
- An estate involving several properties or more complex financial arrangements
Deciding Whether This Fits A Southfield Estate Plan
Because this deed works well for some families and poorly for others depending on their specific goals, reviewing the full picture before executing one matters considerably. A Southfield estate planning lawyer can evaluate whether this deed, a trust, or some combination fits a family’s actual circumstances.
Coordinating This Deed With The Rest Of An Estate Plan
Because this deed only addresses real estate, it typically needs to work alongside other planning tools covering the rest of a person’s assets. A Southfield estate planning lawyer can help make sure the deed and the broader plan are consistent with each other.
This deed offers a rare combination of full lifetime control and automatic transfer at death, but it is not a complete estate plan on its own for most families. If you are considering this option or reviewing your overall plan in Southfield, reach out to our office to go over whether it fits your situation.
