What is a ‘lady bird' deed? And how can it help me with Medicaid eligibility? 

Under Michigan law, a ‘lady bird' deed is an elegant-sounding designation for a relatively common type of real property interest formalized in a document.  This interest is that of an enhanced life estate interest. 

A life estate is a type of real property interest that may be granted to a person for the duration of a person's life. For example, a parent might transfer a piece of lakefront property to his or her son that includes a life estate, allowing the parent to use the property exclusively until his or her natural death, at which point, the ownership would transfer directly to the son. However, a traditional life estate is incredibly limiting for the grantor, and essentially prohibits him from encumbering the property with a mortgage or allowing it to fall into disrepair without the threat of liability. Moreover, transferring a real property interest subject to a regular life estate to a loved one during the five-year Medicaid “look-back” period could trigger a temporary penalty congruent to the value of the property. 

By contrast, an enhanced life estate – known as a “lady bird deed” in states like Michigan, Florida or Texas – is far less restrictive. For instance, the party grating the life estate may encumber the property, sell the property, or otherwise maintain complete control over the asset for the duration of his natural life. Perhaps a confusing type of property interest transfer, the Lady Bird deed allows for a number of benefits, particularly with regard to Medicaid eligibility. 

Using the Lady Bird Deed as an Estate Planning Strategy

Under Medicaid guidelines, an applicant is only eligible upon a showing of true financial need. In other words, the applicant has no personal assets to sell in order to pay for medical benefits, and has essentially met the “needs-based” guidelines set forth by state and federal authorities. 

While financial need is the hallmark of eligibility, applicants are not expected to be without shelter in order to qualify. Accordingly, an applicant's primary personal residence is generally not “counted” against him or her for purposes of receiving benefits. However, any other residence (i.e., second home or investment property) must be disposed of for market value prior to the five-year look-back period in order to avoid penalties. If an applicant transferred property to a friend or loved one and retained a traditional life estate, this transfer will likely result in penalties when the party with the life estate applies for Medicaid benefits. However, if the life estate is under the terms of a lady bird deed, Medicaid views the property as under the control of the applicant, and will consider the property as a primary residence.  

If you are considering Medicaid eligibility, or would like to discuss long-term care options with an experienced Auburn Hills elder law attorney, please contact Andrew Byers by calling (248)301-1511.