As an estate planning attorney, I have received a lot of questions lately about “ladybird” deeds in Michigan so I wanted to provide some information about what a ladybird deed is and how it can be an excellent, cost-effective estate planning tool. Here are the top 5 things you need to know:
1) A ladybird deed is a way of transferring property, using either a quit claim deed or warranty deed. The term “ladybird” is not a legal term but is used to refer to a special method of transferring property which is achieved by adding additional language to a quit claim deed or warranty deed. When looking at an actual ladybird deed, you will not see the language “Ladybird Deed” anywhere in the document.
2) A ladybird deed gives the owner a life estate in their property and names a beneficiary of the property upon the owner’s death. By executing a ladybird deed, the property owner does not give up the right to sell, gift, mortgage or lease the property during his or her lifetime. The owner retains full control of the property during their lifetime. No transfer to a beneficiary occurs until the property owner dies and still owns the property upon their death.
3) A ladybird deed avoids probate. This is usually the primary purpose of executing a ladybird deed. Probate can be time consuming and costly; using a ladybird ensures that your real estate transfers directly to the intended beneficiary upon the death of the property owner.
4) A ladybird deed can be helpful when a client is receiving or may need Medicaid assistance in the future. If a loved one needs nursing home care and does not have ability to pay for it, the individual may qualify for Medicaid benefits. Transferring property through a ladybird deed is not considered a “divestment” and will allow the Medicaid recipient’s homestead to be treated as a noncountable asset in the context of a Medicaid application.
5) A ladybird is a low-cost and effective option for transferring property. One of the most attractive features of a ladybird deed is that it is an easy and affordable way to transfer property, especially for a client with a modest estate. A ladybird deed can be a good alternative to a trust in certain situations.
But a caveat… a ladybird deed is not right for everyone. If a client has beneficiaries who are minors, disabled, or unable to manage assets responsibly, I do not recommend a ladybird deed. Additionally, I advise my clients to be cautious in naming too many beneficiaries in a ladybird deed as there are potential pitfalls in having multiple joint owners.
Have more questions about ladybird deeds? Feel free to contact me and I am happy to assist.