Lady Bird Deeds and Enhanced Life Estates

Lady Bird deeds are a useful estate planning tool. A Lady Bird deed, executed properly, can avoid probate while allowing the individual to retain total control. A ladybird deed is comparable to a transfer on death designation on a checking account or investment. It gives the grantee no current interest but provides (without promising) a future interest. Another term for these Deeds is an Enhanced Life Estate Deed. Florida and Michigan are one of only a few states that provide for Lady Bird Deeds. Currently, Lady Bird deeds are very popular in the state of Michigan for a variety of reasons.

Benefits

The main benefits of a Lady Bird deed are:

• Full Control of Real Property: Grantor has full control of the real property during life.
• No Probate: Automatic transfer of the real property upon death of the Grantor.
• Creditors: Grantor is not subject to future beneficiaries’ creditors.
• Medicaid: Not considered as an ineligible transfer of assets.
• Homestead: Grantor keeps their tax exemption and homestead creditor protection.
• Cost-Effective:  Reasonable fees to set up and avoids probate fees in the future.

Bird’s Eye View of How it Works

A typical deed, seller gives all the interests they have to buyer. Other times, Seller may give the interest to Husband and Wife, and when one dies, the other has the sole interest. Because dirt and real property, and tracking the ownership and transfer of it, is such an important part of the economy and legal system, methods arose for property conveying “future interests.” Those are the rights you get later. A deed can say, “I sell my house to Terry, and when Terry dies, the house goes to his sister Sally.” Sally would hold a future interest in the home. Once that deed is recorded, no one other than Sally can do something to take that interest from Sally. Terry has a life estate. All Terry can sell is the possession of the home, for as long as he lives. As soon as Terry is gone, she takes over.

What a Lady Bird deed allows is the seller, who will often retain possession, to reserve the power to change their mind. Just like you can go to the bank and change your transfer on death designation from a sister to a brother, and you can spend the money however you want, so too can the grantor of a ladybird deed draw up a new deed transferring either the whole property or the remainder life estate to another person.

Cool, cool, cool… But why are we getting get a female bird involved in Estate Planning?

Something happened in the Gulf of Mexico one day, but legal historians do not agree if it was on the Texas or Florida coast. Legends abound that President Lyndon B. Johnson conveyed real estate to his wife, Claudia Alta “Lady Bird” Johnson, by means an enhanced life estate. The other story involves a Florida-based attorney, used a fictitious cast of characters – which included Lady Bird – in his elder law materials to illustrate the usefulness of the enhanced life estate transfer. While LBJ was a trailblazer in many respects, beliving he created a new form of property conveyance is a stretch. For a great deep dive, check out Kary Frank’s illuminating post on Lady Bird Deeds.

No matter how it started, Lady Bird deeds have entered the legal lexicon and remain an important tool for estate planning.