Lady Bird Deeds and DIY Deeds: Common Pitfalls to Avoid in Estate Planning

A Lady Bird deed is an estate planning tool used in Michigan and several other states. In a Lady Bird deed, a property owner can name a beneficiary to inherit the property when the owner dies. The owner retains a life estate in the property, which allows them to continue to live in and enjoy the property during their life.

However, unlike traditional life estate deeds, Lady Bird deeds allow property owners to retain the right to amend or revoke the deed during their life. Thus, Lady Bird deeds allow property owners to retain flexibility in updating their estate plans throughout their lives while still enjoying the benefits of the deed.

People frequently use Lady Bird deeds as part of Medicaid planning. With a Lady Bird deed, a property owner can pass the value of their property out of their estate, which can help individuals qualify for Medicaid. People who receive Medicaid benefits to pay for long-term care costs must repay those benefits from their estate after death. In some states, Medicaid recovery rules allow individuals to place their property out of the reach of Medicaid through Lady Bird deeds.

Lady Bird deeds also allow real estate to pass to beneficiaries outside of probate, as the named beneficiary already has the right to own the property upon the decedent’s death.

Understanding DIY Deeds

In some cases, people may choose to transfer property through DIY or “do-it-yourself” deeds. A DIY deed can refer to any deed drafted without legal assistance. People may find templates online that they can use to create a DIY deed. However, online deed templates frequently take the form of a quitclaim deed, as the template publisher cannot provide legal assistance to customize the deed to the user’s situation. In a quitclaim deed, a seller disclaims any guarantees or warranties regarding the title they purport to convey to the buyer. Therefore, the buyer agrees to take whatever title or interest the seller may have in the property. People may use quitclaim deeds to transfer property interests to one another as part of intra-family transfers or estate planning. DIY deeds have several advantages, including convenience and cost-savings from not using legal counsel to draft the deed.

Common Pitfalls to Avoid

Some of the most common issues that arise when using Lady Bird and DIY deeds include:

• Improper execution, including failing to meet state law requirements or issues with witnesses, notarization, or recording
• Unintended tax liabilities, including capital gains taxes
• Drafting errors, including misidentifying property boundaries or legal descriptions or making spelling errors in party names
• Complications with attaining Medicaid eligibility
• Failure to consider future changed circumstances

Contact an Estate Planning Lawyer Today

When deeding property as part of the estate planning process, an experienced attorney from Bingham Legal Group can help you avoid mistakes that may jeopardize your family’s rights and interests. Contact us today for an initial consultation with our legal team to learn more about Lady Bird and DIY deeds.