Ladybird: A different deed (Or, how you can have your cake and eat it too).
When buying a home you would expect to get a warranty deed; this deed guarantees or “warrants” that you are getting good title. It is typically backed up by a title insurance policy. Another type of deed is a quitclaim deed. This is the deed used when property is being transferred from one family member to another. No warranties are necessary and title insurance is not usually obtained because the deeds are usually gifts.
An offshoot of the typical quitclaim deed is the ladybird deed. A ladybird deed typically conveys property from the owners (in deed language they’re called grantors) back to themselves for their lifetime and at their death to whoever they name; typically a son or daughter or other close relative . The owners reserve the right to sell the property or really do whatever they want with the property during their lifetime. If the property is still owned by the owners at their death then it automatically goes to whoever they chose – the residual beneficiary. So why engage in all this rigmarole anyway? Why pay a lawyer to draft a deed on the property you own and have the lawyer deed it back to you for your lifetime? Isn’t that just a waste of money? Maybe, but not if Medicaid is involved.
Most of you are familiar with the high cost of a nursing home. Generally, a person must deplete all of their assets down to about $2000 before he or she would be eligible to receive Medicaid benefits for their nursing care. If you owned a home and received Medicaid benefits Michigan would seek to recoup Medicaid funds paid out on your behalf by placing a lien on your home. If you tried to avoid the Michigan recovery program by quit claiming your house to another person or to a trust during your lifetime Medicaid could view this transfer as a divestment and penalize you.
By using ladybird deed however, Michigan’s estate recovery program would not seek to lien the home because the program only goes after property in probate court. Since the transfer to the residual beneficiary is automatic there is no probate. And the Medicaid rules now in effect specifically allow a lady bird transfer without penalty.