Effective Ways to Pass Down a Home in Your Estate Plan; Joint Ownership, Trust, or Lady Bird Deed?
A common initiative in estate planning is to avoid probate. Probate is time consuming, costly, and removes all privacy as probate becomes a matter of public record. While there are many assets that need to be planned to avoid probate, today’s article will focus one of the largest assets for most, our homes.
The role of the estate planning attorney is understanding the client’s situation and desires and use a variety of techniques and methods to assist and achieve the client’s goals.
In Michigan, there are several forms of jointly owned property for real estate. If you are not sure what type of property ownership you have the deed is usually the best place to look. Some deeds use archaic language and may need a real-estate attorney to provide assistance. Here is a quick summary of each type of joint ownership.
Tenants in Common - all tenants have an equal right to use and occupy the entire property until a tenant sells their interest or dies, at which time each tenant is only entitled to pass on their fractional share. Tenants in common do not possess a right of survivorship and happens to be the default in Michigan if the deed does not specify another type of joint tenancy.
Joint Tenants - property passes to the surviving owner(s) upon the death of a joint owner. A joint tenant’s interest in the property terminates at the time of the tenant’s death, and the tenant’s estate possesses no interest in the property.
Joint Tenants with Full Rights of Survivorship - Property passes to the surviving owner(s) upon the death of a joint owner. No owner may sell or pledge their undivided interest without the consent of the owner joint owner(s). A joint tenant’s interest in the property terminates at the tenant’s death, and the tenant’s estate possesses no interest in the property.
Tenants by the Entireties – Reserved for married couples, this form of ownership, the husband and wife are each presumed to own the entire property and each has an indestructible survivorship right. Neither husband nor wife may sell or pledge the property without consent of the other spouse. A tenant by the entireties’ interest in the property terminates at the tenant’s death, and the tenant’s estate possesses no interest in the property.
Once you know how your house is currently titled by deed, the next step is to determine if this is the best form of ownership or if a change should be made. Typically, an estate planning attorney, after reviewing the entire estate, will choose between utilizing a trust, ladybird deed, or a combination of both to properly plan the real estate to avoid probate. There are several reasons why adding a child as a joint-tenant or tenant in common may be not be the best path forward and both a lady bird deed, trust of combination of both is typically the best approach.
Lady Bird Deeds (Enhanced Life Estate) – Lady bird deeds are a popular real estate technique for avoiding probate. They are simple but an effective part of estate planning. I have included a link for more detail, but generally the benefits of Lady Bird Deed are 1) probate avoidance, 2) Medicaid Benefits and Long-Term Care Planning, 3) Control of the real-estate during lifetime, and 4) Tax Friendly Benefits, and 5) Reduction of Creditor Issues with Beneficiaries.
Revocable Trust – Another good way to avoid probate with the transfer of real-estate is a trust. Trusts are an important estate planning tool and the topic is extensive and can be complicated. In general, a trust is a contract made during life in which the settlor directs his or her trustee on how to manage assets for a third-party benefit. Trusts, like lady bird deeds offer many advantages for real-estate transfers including 1) Control of Distribution, 2) Privacy, 3) Organization of Asset Ownership.
Trusts are particularly important when you have young children, or own a family cottage. Trusts are an excellent method for probate avoidance, but are not right for every estate. Creating and administering a trust has some additional complexities and costs.
Properly planning the conveyance of real-estate upon your passing or moments of incapacity is extremely important and a main reason whey families create an estate plan. The proper understanding of asset titling, tax considerations, and other family dynamics are important reasons to include an experienced estate planning attorney.
A bit about us – Matt Devitt Law is a full service estate planning law firm located in Livonia, MI. In addition to estate planning we also provide legal counsel for small businesses and off a full suite of real estate legal services as well.
We work with our surrounding community nearby Livonia, Northville, Plymouth, Novi, Farmington Hills, and beyond. Our focus is on providing pragmatic value based solutions for your estate planning, small business, and real-estate legal needs. Give Matt a call (734) 335-0713 for a free consult.