Lady Bird deed discussed at probate seminar

By Roberta Gubbins
Legal News

Suppose that Sally owns her home and wants to transfer it to her children when she dies but still wants to keep control over it while she is alive. How can she do that?

Members of the ICBA Probate Section met recently at the Michael Franck building in Lansing to hear Josh Ard, well known local attorney, explain the Lady Bird deed, which could be a method of accomplishing Sally’s goal.  

“A Lady Bird deed is a version of a transfer on death deed,” he said, noting that while some states have statutes for transfer on death deeds, Michigan does not. “The idea is to have a deed that will transfer interest on the grantor’s death.”

This type of deed is not, he explained, a deed granting the owner a life estate or the right to the property until his death and then the property goes to the heir.

Such a deed, “gives something away right now. I have made a gift (of the remainder), which gives the receiver rights to the property and thus a say in what happens to it. It also gives the receiver’s creditors rights to the remainder.” 

Where did the name “Lady Bird” Deed originate?

The name is associated with Lady Bird Johnson although President Johnson did not use such a deed. “The story is that a Florida attorney was using these deeds and when describing them used the Johnson family names. The name stuck.”

The Lady Bird deed in Michigan uses powers of appointment and an enhanced life estate.

It is based on The Powers of Appointment Act of 1967 (MCL 556.111 et seq) and is described in Land Title Standard 9.3.

“In the typical Lady Bird deed, the grantor gives herself a life estate and a power of appointment over the remainder,” he said. “What I could do with my own property is to say I’m going to give myself a life estate, but I also want to then reserve a power to do whatever I want with the remainder interest — I could convey it or give it away, but, under the powers of appointment, I can also include a gift in default in case the receiver of the gift fails to exercise the power.”

Normally, there is one party acting in the roles of grantor, grantee and donee, however, it is possible for grantor A to give B a life estate and give C the power to decide what to do with the remainder, he explained.

There are other types of deeds “out there,” he said. “What is common is a deed giving me a life estate and an interest to my best friend, Mary, but I’m going to reserve the right to take that thing away from Mary. The question becomes — Can you as grantor take that interest away from Mary?”

“There is nothing in your real property books that says I’m giving you this land for as long as I care for you to own it,” Ard said. “And if I change my mind, I’m taking it back. There are plenty of arguments out there saying you can’t do that.”

The best argument, according to Ard, “is that nothing has been transferred, but until I have taken those rights away, the donee has rights. It is not at all clear what a court will do in those situations.”

“If you use a power of appointment, you don’t have any of those problems,” he said.  Ard explained it this way: “The owner of the property gives himself a life estate and a power of appointment over the remainder and then there is also listed a gift in default and if I fail to execute this power of appointment completely then the interest goes to my heir. Thus the heir is not a grantee on the deed.”

Not being listed as a grantee is important explained Ard, since creditors look for grantees at the Register of Deeds to find property, which can be attached to satisfy a debt.

“The biggest problem with Lady Bird deeds,” he said, “is lack of understanding by lawyers, title companies and others.”

Ard urged the adoption by Michigan of a Uniform Real Property Transfer on Death Act, which could be understood by everyone.

“The uniform law is clear that the deed is effective upon the grantor’s death and can be revoked.”

Josh Ard is chair of a committee appointed by the Probate and Estate Planning Section of the State Bar to investigate the Uniform Real Property Transfer on Death Act for adoption in Michigan.