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A Lady Bird deed and its role in your estate plan

| Apr 17, 2021 | Wills & Trusts

Michigan is one of just five states that recognizes what is known as a Lady Bird deed. This is a tool that can be useful in estate planning. It can be a way of passing on real estate without having that property go through probate.

What is a Lady Bird deed?

When you use a Lady Bird deed, you transfer property to a beneficiary, such as one of your children, while you are still alive. However, you still retain full control of the property. For example, if the real estate is your home, you can remain living there. If you decide to sell or mortgage the property, you are allowed to do this as well without having to get permission from the beneficiary.

Medicaid benefits

One of the biggest benefits of a Lady Bird deed is that it can protect your home both before and after your death by exempting it from Medicaid spend down requirements. Your home will be counted as part of your estate for estate tax purposes, but since the individual estate tax exemption is currently more than $11 million, you are not likely to need this. However, the exemption is set to expire after 2025, so the rules may change at that time.

Capital gains tax benefits

If your beneficiary decides to sell the real estate, he or she also gets a tax benefit in the form of what is called a “stepped up” tax basis for capital gains. This means that the tax will be based on the difference between the sale price and the value of the home at your death instead of the value at the home when you purchased it.

Estate planning can be complex, and there may be a number of options like this one that you are unaware of. One advantage of working with an attorney to prepare your estate plan is that they might be able to suggest this or other strategies that could be appropriate in your situation. An attorney may also help ensure your estate planning documents are prepared correctly.

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