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Ahee

Keeping the family home out of probate


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August 28, 2014
Q. I heard from a friend that you can quit claim your home to a loved one, never record it at the register of deeds, file it away in a dresser drawer or other location and let the loved one know where to find it when you die. The loved one can then record it and enjoy title to the property. Is this true?

A. For a very long time it has been commonplace in estate planning to use the "deed in a drawer" to pass real estate on after death without going through a probate procedure.

These deeds are a problem for a number of reasons:

They are a current transfer of ownership (and control) of the subject real estate despite its not being recorded, especially if the loved one has a copy of the deed, since delivery and acceptance of the deed is a requirement for a transfer to be legally completed.

The transfer itself may be brought into question based on the contention the delivery of the deed and its acceptance did not take place until after death, nullifying the transfer of property and forcing it into probate (and into another person's hands).

Such a deed is considered an asset divestment. For purposes of qualifying the grantor of the deed for nursing home Medicaid while that person is alive and subjects the nursing home applicant to substantial penalties equivalent to the market value of the property when it was deeded.

In some cases the recipient of the property is subject to back property taxes due to uncapping all the way back to the date the deed was signed. These back taxes can be substantial.

Q. Is there an alternative to the "deed in a drawer"?

A. Yes. An excellent and relatively inexpensive alternative to a "deed in a drawer" is the "ladybird deed." This deed has become popular in recent years because it allows the grantor to retain full rights in the property while alive. No transfer takes place under the deed until the grantor dies. It is important to word these types of deeds very carefully to make sure they operate in the intended manner.

Choosing this alternative can avoid significant costs that are not contemplated when that quitclaim deed you thought would take care of everything is put away in a drawer.

Kelly is a licensed attorney in Michigan for more than 23 years and can be reached by email at kellmich@kellydr.com. Kelly Legal Solutions, PLC.

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