“Ladybird Deed” Language Removed from Michigan Tax Guidelines

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Many people have heard of a "Ladybird Deed," but few understand how Ladybird Deeds work. In essence, this type of deed allows property to pass automatically upon an individual's death without the need of probate, offering a simple, inexpensive way to transfer real estate.

For example, a Ladybird Deed is created if you convey your home to yourself, but reserve the power to sell, mortgage, gift, or otherwise transfer the home during your lifetime. If you don't convey the home during your lifetime, the Ladybird Deed identifies who receives the home after you die. This can be one or more individuals, or it can be a trust. Therefore, the Ladybird Deed lets you:

  • Avoid probate of the property
  • Retain the right to use and profit from the property for your lifetime
  • Retain the right to sell the property at any time
  • Avoid making a gift that might be subject to federal gift tax

Until recently, the Michigan State Tax Commission Guidelines suggested that the use of a Ladybird Deed would exempt residential real estate from property tax uncapping upon the death of the person holding the life interest in the property. However, the most recently published Guidelines from the State Tax Commission do not address this issue.

The Tax Guidelines are only general guidelines for assessors and not binding law, but the removal of the Ladybird Deed language from the publication is concerning, as the impact of this deletion and the intent of the State Tax Commission is yet to be seen. As our prior blog posts indicate, the issues surrounding uncapping continue to be moving targets, and we will continue to monitor this issue.

Topics:  Deeds, Estate Planning, State Taxes

Published In: Residential Real Estate Updates, Tax Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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