There's a story that Lady Bird Johnson, former First Lady and wife of President Lyndon Johnson, had a home that she wanted to give to an heir, but she didn't want to give it right away, and she wanted to be able to change her mind. There are many ways this could be done, but about 40 years ago a crafty Florida attorney prepared a special deed for Mrs. Johnson that let her give the home to someone on her death, but kept for herself the right to live in the house and even to sell or re-deed the house.
Benefits
This story may not be true, but there really is something called a Lady Bird Deed, and it really does what Mrs. Johnson wanted in the story. Legally, it is called an "Enhanced Life Estate Deed", and it has several great benefits.
Please remember that laws can and do change. You should talk to your lawyer about current laws, and how your plans could be affected by any future changes in the law.
Avoid Probate
Having a Lady Bird Deed means that your home, or any real estate, can go to your designated heir or heirs without going through probate court. No Inventory fees to the court, no waiting for creditors to make claims, no lost wills, no disputes about the intent.
Retain Full Rights
During your lifetime, you will have the right to do anything with the land that you could do before. Build on it, rent it, modify the land, whatever. You give up no access or control at all.
Sell or Re-deed
You keep the right to sell the land anytime you want. This deed does not affect your ability to market and sell the property. You can also undo the deed, or re-deed the land to someone else. The named beneficiary only receives the land if you haven't sold or re-deeded the land before your death. That person has no rights to the land, and their creditors can't touch the land while you're alive.
Simpler and Cheaper than a Trust
For most people whose assets at the end of their life are a little cash in the bank, their home, and maybe a vacation cottage, a Lady Bird Deed along with beneficiary designations on their bank accounts can take care of all distributions to their heirs without a complicate or expensive trust. This is especially handy for people with adult children where a specific child will get the house.
Works with a Trust
If you have a trust, or need a trust, the Lady Bird Deed can be written naming the trust as the recipient of the property. This gives you the benefits of both.
Works with Medicaid
For anyone who is on Medicaid for long term care, or may need Medicaid, keeping your home can be an important benefit. To qualify for Medicaid you generally are only allowed to keep a small amount of cash in the bank, one car, and your home. But, the home has to be deeded in your name. If you have the home in a trust, it will be counted as an asset you have to dispose, and not as your primary residence. And if you just give the property, or add someone's name as co-owner, you could end up disqualified for Medicaid. This is one of the great benefits of the Lady Bird Deed. You can make sure your home goes to your named heir, while still being able to keep it while on Medicaid.
Avoid Michigan's Estate Recovery Program
The State of Michigan will attempt to recover money from the probate estate of an individual who received Medicaid long term care assistance. The state can only collect those funds from assets that go through a probate court proceeding. By avoiding probate, a Lady Bird Deed also avoids being the target of estate recovery. So, rather than having your home or family farm or lakefront cottage sold to pay the government, you can make sure that property goes to your intended heirs.
Avoid Gift Taxes
If you give the property outright to someone, or name them as a co-owner, or even as a beneficiary in a normal life estate deed, that person will legally have received something of value for free. Depending on the value, that gift could have negative tax consequence for you and the recipient. With a Lady Bird Deed, the property does not legally belong to the beneficiary until after your death. So what they receive isn't a gift, but an inheritance, which usually means better tax results.
It may not be enough on its own
There are some cases where a Lady Bird Deed alone is not the best option:
- Large number of heirs to share the property: A trust, with its rules on decision making, can avoid future conflict between family members sharing property.
- You want to control the use of the land after your death: A good example is vacation property that has been in the family for generations, and you want to be sure that grand-children or great-grandchildren will also have the chance to enjoy this family heritage as it is without it being redeveloped or sold.
- Business property: If the land is being used for profit, there may be tax benefits to placing it in a trust or a Limited Liability Company (LLC).
- Heirs receiving government assistance: You definitely DO NOT want to give land to someone who is on government assistance, or may be on assistance when you die. This could disqualify them for the assistance they need. A trust can be written to handle the possibility of a beneficiary with special needs.
- Minors: You may want your favorite grandchild to receive the family farm, but if they're not already 18, you can't assume they will be an adult before your death. A trust is the proper way to handle this.
In all these situations described, a Lady Bird Deed could still be used, but only with a properly prepared trust.
It's estate planning not an estate plan.
Laws change. Your family changes. You change. Estate planning is not a stack of paper that you sign once and forget. You must review your plans at least every few years, or any time you or your family have a major life event.