Today let’s begin with a fun fact, instead of jumping right into definitions. The term “Ladybird” came from the lawyer who created this type of deed – he used the names of the Johnson family in example for showing how the deed worked, as the deed became popular, the name stuck. It’s not because President Johnson used this deed. So like Kleenex is a tissue, a Ladybird Deed is an enhanced life estate deed.

Now for definitions – a Ladybird Deed is a type of warranty or quit claim deed that gives the owner the ability to transfer the title, automatically, to someone (a beneficiary) in the event of their passing, outside of probate court. It also allows the owner to retain control of the property during their life, and this includes the right to change the beneficiary or sell the property, among other things. As of now, only 5 states currently recognize Ladybird Deeds – Michigan being one of them. Generally a Ladybird deed will be prepared with an Estate Planning Attorney, it is then signed and recorded with the local register of deeds. It’s a fairly simple process, but a very effective tool.

 So, we avoid probate court, which we have established in previous talks, can be costly and time consuming. We are allowed to stay in control of the property until we pass, what other benefits are there to a Ladybird Deed?

In our next blog we will discuss the somewhat confusing subject of the Medicaid 5 year look-back. A transfer by Ladybird Deed is not part of the probate estate, therefore, it cannot be taken by the state to repay the cost of Medicaid nor can it be considered in the 5 year look back, because the property is still yours until your passing – you haven’t transferred or gifted this asset while alive. Although, I do still highly recommend consulting a Medicare planner about this.

Property taxes will not increase for the beneficiary since the property is directly passed. And since the property doesn’t become theirs until your passing, they also will not be subject to gift tax. It is also a cost effective estate planning tool if your only major asset is the home you own. A Ladybird deed is considerably less expensive than a Living Trust.

Possible drawbacks of a Ladybird Deed… if you’d like to leave the property to more than one beneficiary, it’s not exactly the most flexible or easiest solution. If you have more assets that just your home, it may not be enough to avoid probate court. If you want to control WHEN your beneficiaries receive the property – perhaps to protect them from creditors, bankruptcy, divorce or possibly you want the beneficiaries to still be able to receive needs-based government benefits – such as Medicaid. With any of these situations, a Living Trust might be better for you.

 As with any planning of your assets, it is best to consult an Estate Planning Attorney. They can help you decide which method is right for you and guide you through the process. We can help you with any questions or concerns you have regarding property transfers and help you create a secure plan for you and your family. Click here to contact our expert Estate Planning and Probate Attorneys.