Ever wonder what kind of alternatives there are to wills and trusts? What if the main or only asset you own is your home? Can your estate beneficiaries still avoid probate court without needing a trust? Yes. There are a few ways you can do this. One of them is by owning assets with another person in joint tenancy, which has its risks and is rarely the best alternative, especially in situations not involving a married couple. A better alternative is called a Lady Bird Deed.
Lady Bird Deeds are only legal in a few states nationwide, including Michigan. They are often powerful tools when it comes to Medicaid and other estate planning. Lady Bird Deeds are effective if your main valuable asset is a home and you want your family to avoid probate court upon your passing. There are also tax advantages (they give your beneficiaries a step-up in basis at the time you pass away). This special deed allows you to keep control over your home throughout your lifetime, but once you pass away, it automatically transfers to your beneficiary. This differs from a typical warranty or quitclaim deed without Lady Bird Deed language, which would typically require your family to go through probate court to transfer the property out of your name after your passing. Lady Bird Deeds are not flexible, however, and may not offer benefits that a trust or will does, but they are useful in certain situations. They are cost-effective alternatives to trusts, used in cases where you do not have minor children, prefer not to set up a trust, and your home is your primary asset.
As noted earlier, the Lady Bird Deed has become a useful tool in estate planning and probate avoidance over the years. For Medicaid purposes, because the owner of the property still has an unrestricted interest in the property, the transfer is not considered a divestment. Also, if the property is the homestead, it remains a non-countable asset. The Lady Bird Deed becomes a primary document for someone who has few assets other than the exempt homestead. Before or after qualifying for Medicaid benefits, the owner can execute and record the Lady Bird Deed. The deed is a transfer-on-death document. Therefore, the property does not become part of the probate estate, which currently exempts the property from Medicaid Estate Recovery proceedings.
