Legal Question in Wills and Trusts in Michigan

The pros are many and there are no cons, unless the law changes. I use these exclusively if the client does not have a living trust.

Here is a cut and paste of an article I have written. Please make sure you work with an expert if you are going to establish a lady bird deed. I would welcome the opportunity to assist.

Here is my background. . Here is a little bit about myself. My practice is limited to specializing in issues concerning disability, estate, long term care, nursing home, Veterans, Medicaid and special needs planning. I am the President/Chairman of the Board of Directors of the Alzheimer�s Association - Greater Michigan Chapter (have been for 5 years) and member of the Association's executive committee; Member of National Academy of Elder Law Attorneys and have been listed since 1991 in the Academy's Experience Registry. Also I am a past Chair of the Governing Council of the Elder Law and Disability Rights Section of the State Bar of Michigan. I am also a Charter Member of the Academy of Special Needs Planners and Member of the Financial and Estate Planning Council of Metropolitan Detroit. I have been recognized in 2009, 2010 and 2011 and 2012 as a "Superlawyer" which designates that I am one of the top lawyers in my field. I am also an accredited attorney with the US Department of Veterans. I have also been selected once again In 2012 by Hour Detroit and Dbusiness Magazines as a 5 Star Wealth Manager in the area of estate planning and received the same award in 2011 and 2012.

EXPLANATION OF LADY BIRD DEED OR OTHERWISE

KNOWN AS AN ENHANCED LIFE ESTATE

These deeds are more accurately called "enhanced life estate deeds" but got their more colorful moniker (according to unsubstantiated legal lore) because President Johnson once used this type of deed to convey some land to Lady Bird.

"Life estate" is an ownership arrangement for land designed to accomplish two things: 1) it allows the homeowner to retain the use of the home during his/her lifetime, and 2) it transfers title to the home at the time of death without the need for probate.

In a regular life estate deed, the owner keeps the "life estate" and conveys a "remainder interest" to someone who will inherit the property. The current owner continues to occupy and use the property and is entitled to all money that may come from the property. However, the owner cannot sell the property without agreement of and participation by the holder of the remainder interest. Further, the IRS puts a value on the creation of the remainder interest, and if it is large enough there may be gift tax consequences.

A "Lady Bird" enhanced life estate deed adds one feature: the owner keeps the right to sell or give away the land without anyone�s consent or participation. Essentially, the owner has the unilateral right to cancel the remainder interest. As such, there is no taxable gift to be accounted for.

If the arrangements under the Lady Bird deed are not cancelled, then when the owner dies the life estate expires automatically. The remainder interest matures into full, unrestricted ownership. The ownership change happens without probate.

The following is a comprehensive list of the advantages and disadvantages of the Lady Bird Deed.

LADY BIRD DEED OR OTHERWISE KNOWN AS AN ENHANCED LIFE ESTATE.

ADVANTAGES:

1. No need for /deeds in the drawer.

2. There is no due on sale or acceleration of mortgage note.

3. A husband and Wife retain Tenancy by the Entireties protection.

4. It avoids the cost and delay of Probate.

5. Liability insurance does not need to be changed.

TAXES:

6. There is no uncapping of property tax

7. There is no rescission of the Principal Residence Exemption.

8. There is no Gift Tax owed under the Internal Revenue Code.

9. The property does not lose step up in basis under the Internal Revenue Code 1014 and 2036 (a).

10. The property does not lose capital gain exclusion under Internal Revenue Code 121.

11. There is no county transfer tax.

12. There is no state transfer tax.

MEDICAID:

13. Estate Recovery which was recently passed by the State of Michigan will be avoided.

14 There is no divestment/Gift for Medicaid purposes.

15. There is no loss of any Medicaid exemption � the home is still protected provided the equity does not exceed $500,000 subject to certain exceptions.

BENEFICIARY ISSUES:

16. One keeps control during life and can transfer, mortgage, lease, or perform

any other transaction concerning real estate WITHOUT THE CONSENT

OF THE REMAINDERMEN/BENFICIARIES.

17. The capacity of the beneficiary does not affect the property.

18. There is no exposure to future beneficiaries creditors during the life of Grantor.

19. Future beneficiaries cannot sell or encumber the property.

20. Future beneficiary can not partition or interfere with the use of the property.

21. It reduces the risk of Elder abuse.

22. Can name a Trust as beneficiary of deed.

DISADVANTAGES:

1. The property is a countable asset for Medicaid purposes unless it is exempt (i.e. Homestead).

2. The property is an asset for Federal Estate and Generation Skipping taxes (i.e. not a completed gift).

3. There is no control after death unless conveyed to Trust.

4. Some assessors and Register of Deeds personnel are unfamiliar with Lady Bird Deeds and may mis-classify them.

Don Rosenberg, 248-641-7070