Is an Enhanced Life Estate Deed Right for Me?

An Enhanced Life Estate Deed, otherwise commonly referred to as a “Lady Bird Deed,” can be an effective tool for purposes of avoiding probate. For many, a family home can be one of the most valuable assets in their possession. Furthermore, ensuring the real estate transfers from one generation to the next can be difficult without proper planning.

The Good

  • Probate – the real estate will transfer upon death to the named beneficiaries, avoiding probate.
  • Use – the owner retains the right to live in or otherwise use the property as they please.
  • Beneficiaries – the owner retains the right to change the named beneficiaries at any time.
  • Sale – the owner retains the right to sell the property or otherwise “undo” the Lady Bird Deed.
  • Taxes – the transaction will not cause the property taxes to uncap, and the beneficiaries ultimately receive a step-up in basis.
  • Gift – the transaction does not constitute a gift, as it is not a completed transfer until death.
  • Protection – the real estate will be protected from Michigan Medicaid Recovery, as it does not constitute a divestment.

The Bad and the Ugly

  • The The Michigan State Tax Commission removed the use of Enhanced Life Estate Deeds from its guidelines as a recognized means of preventing property tax uncapping in 2014. Though these are merely guidelines, it may be indicative of future treatment.
  • The use of such a deed is not deemed a “divestment” for purposes of Medicaid eligibility. However, the home must be exempt as Homestead. If it is likely the owner will apply for Medicaid within the next 5 years, the property will be subject to recovery if the deed is otherwise “undone.”
  • The beneficiaries must have the financial ability to maintain the real estate. If the property is sold after applying for Medicaid, the 5 year look back period restarts and the proceeds are subject to Michigan Medicaid Recovery.

The Enhanced Life Estate Deed can be an effective tool for transferring real estate from one generation to the next, but may not always be the best option.

Attorney Joseph C. Jones advises clients on estate planning, asset protection, business law, and real estate law matters. Joe can be reached at (906) 914-4181 or Jones Law PLC is a Michigan & Wisconsin based provider of legal services.