A “Lady Bird Deed” is a tool of estate planning that allows the transfer of ownership of property to an heir. It’s more official title is “enhanced life estate deed.” In Michigan, by utilizing a Lady Bird Deed, property can be passed down to direct relatives without probate or “uncapping” the property tax valuation. These are standard benefits of life trusts. What makes a Lady Bird Deed unique is the transferor’s retention of the right to sell or lease the property during his or her lifetime. As Rockford, MI Lawyer Kary C. Frank’s article, “The Search for The Lady Bird Deed,” explains “the terms ‘enhanced life estate deed’ or ‘Lady Bird deed’ are loosely described as a conveyance of real property with a reservation of a life estate and the power to sell, mortgage, etc.”
The Legend of the “Lady Bird Deed”
Legend is that the specific type of life estate deed that allows retention of rights to sell, was first used by United States President Lyndon Johnson to transfer property to his wife, Lady Bird. Frank’s article debunks this myth and attributes the origin of the title to Florida attorney Jerome Solkoff in 1982.
“In his elder law book and lecture materials, Solkoff used a fictitious cast of characters with the names Linton, Lady Bird, Lucie and Lynda in examples explaining the usefulness of this new type of deed, and the names became associated with the deed.”
Lady Bird Deeds Can Be Valuable
“I do extensive research when creating an estate plan for a client,” says Wixom Attorney Kathryn Wayne-Spindler, “Lady Bird Deeds can be a valuable part of a thorough plan.” It’s important for property owners to know that life estate deeds can help avoid probate and increased property taxes after death. Probate is the legal process of determining how a person’s estate is distributed after death. In the case of transfer of real estate ownership, the property tax value would be re-evaluated the year after the owner’s death. If the valuation is “capped” it means the taxable value couldn’t be increased more than 1.05 or the inflation rate (whichever is less.)
The Michigan State Tax Commission “Transfer of Ownership Guidelines” details the explanation of taxable value uncapping.
“Except for additions and losses to a property, annual increases in the property’s taxable value are limited to 1.05 or the inflation rate, whichever is less. In the year following a statutory transfer of ownership, that limitation is eliminated and the property’s taxable value is set at 50% of the property’s true cash value (i.e., the state equalized value). This is what is meant by “taxable value uncapping”. See MCL 211.27a(3).”
Without a life estate beneficiary designation, the property value gets “uncapped” potentially resulting in large increases in property taxes. The Lady Bird Deed is not the only way to transfer ownership of property while avoiding probate or tax increases. There are numerous exemptions and recent alterations to Michigan’s property transfer rules.
“Section 211.27a(7), on the other hand, contains a list of certain transfers that are exempt from the definition of “transfer of ownership” that would not result in your property’s taxable value uncapping. In accordance with the Michigan Constitution as amended by Proposal A of 1994, a transfer of ownership will cause the taxable value of the transferred property to uncap in the calendar year following the year of the transfer of ownership.” According to the Michigan Department of Treasury’s guideline, “Changes in Ownership and Uncapping of Property.”
“And under the new law, a transfer of residential real property to a party related in the first degree, will not be “uncapped” as long as the transferee continues its residential use,” regardless of the presence of a Lady Bird Deed. “Indeed, the State Tax Commission has recently confirmed my suspicion that they view this exemption as not applicable to Trusts, LLC’s, or to a distribution from Probate! (Bulletin 23, December 16, 2013).” According to Andy Richards at Great Lakes Bay Lawyers.
With all these exceptions and recent changes, it’s important to consult an experienced Michigan Estate Planning Attorney like Kathryn Wayne-Spindler. She is an expert at designing deeds, trusts and wills that will have the greatest ability to preserve the value of your estate for your loved ones. She has more than 20 years of experience counseling clients, vast amounts of continuing legal education and is thorough in her research of the latest estate-planning tools and trends.
White Lake Estate Planning Attorney Kathryn Wayne-Spindler is aggressive in the courtroom and compassionate counseling her clients. Contact our office to find out if a Lady Bird Deed is right for you, or call the Milford, MI office of Kathryn Wayne-Spindler & Associates at 248-685-8888. The Oakland County Family Law and Estate Planning Attorneys serve clients throughout Southeastern Michigan including Oakland, Washtenaw, Wayne, Genesee and Livingston Counties. They represent clients in Highland, Hartland, Commerce, Wixom, New Hudson, Holly, South Lyon, Milford, White Lake and many more.