You may have heard from our office or from friends that we have recommended that our clients include in their Estate Plan a special kind of deed which is commonly referred to as a Lady Bird Deed. The Lady Bird Deed allows the owner of the property to transfer their real property to designated beneficiaries without having to go through the Probate process when they die. So, you may be asking yourself what is a Lady Bird Deed? It is a special type of deed which allows real property owners to continue to own and control their property until their death. Upon their death, the property automatically transfers to their specified heirs, without going through the probate process. The owner retains the ability to mortgage, transfer, or give away the real property while they are alive. So, in essence, until the original owners pass, they can do what they want with the property.
Over the years, a myth surfaced that this type of deed was originally created in the State of Texas with the Lyndon Johnson family somehow involved in the creation of the deed, which was labeled Lady Bird Deed after President Johnson’s wife. Research on its origin, though, tells us that it was initially created in Florida. What makes a Lady Bird Deed unique is that the actual transfer of ownership does not occur until the grantor’s death. For this reason, some states refer to this type of deed as a “transfer on death” deed (although Michigan does not). The Lady Bird Deed is recorded at the time it is signed, but does not become effective until the grantor’s death, allowing the grantor to retain all right, title, and interest to the property during his/her/their lifetime. This means that the grantor still has the ability to sell the property, take out a mortgage or line of credit against it, or do anything else they wish with it, without permission of the beneficiary or anyone else, right up to the time of death. Lady Bird deeds are generally considered to have many benefits and few disadvantages. Lady Bird deeds in this form are allowed in only four states: Texas, Michigan, Florida, and Vermont.
Interestingly, Lady Bird Deeds are significantly impacted by a Federal Court case in Minnesota (Strope-Robinson vs. State Farm Fire & Casualty Co, 429 F.Supp.3D 634 (D. Minn. 2019)). This case added a new wrinkle to the responsibilities of having a Lady Bird Deed on your real property. The case has an interesting story, and the result is one that may affect every single person with such a deed.
In that case, Mr. Strope executed and recorded a transfer on death deed, transferring his Minnesota home to his niece, Ms. Strope-Robinson, upon his death. The home was insured by State Farm, and Mr. Strope was the only named insured on the policy. When Mr. Strope died on August 14, 2017, ownership of the home transferred automatically to his niece. However, just a few days later, on August 20, 2017, Mr. Strope’s ex-wife burned the home to the ground.
Ms. Strope-Robinson filed a claim with State Farm for the destruction of the home. When State Farm denied the claim, she filed a lawsuit against the insurance company to recover the benefits she felt were owed.
The Minnesota court ruled in favor of the insurance company. And while it may seem like a surprising result, the court relied on the long-standing principle that homeowners’ insurance policies are personal between the insurance company and the named insured and do not attach to, or run with, the land itself. Therefore, because Ms. Strope-Robinson was not a named insured on the policy, the coverage ended when Mr. Strope died prior to the house fire, effectively leaving no named insured on the property and no coverage available. Ms. Strope-Robinson appealed that decision to the U.S. Court of Appeals (8th Circuit) which affirmed the lower court’s decision.
While (hopefully) not too many of us have that type of drama in our lives, the case has certainly drawn attention to the very real possibility that damage can occur to real property after the death of the original property owner and before the new owner can get their own insurance in place, thus leaving the property at significant risk. The lesson here is that when property transfers to a beneficiary through a Lady Bird deed, insurance coverage does not… it ends with the death of the original owner.
What’s the solution? Actually, it’s an easy one. In light of this new ruling, property owners are highly encouraged to add the name of the person or entity (i.e. your trust if you have one) to whom the property will eventually transfer, as an additional insured to the policy while you are alive. A conversation with your personal insurance agent would be wise, and of course, with your elder law attorney too!
So … you should give us a call if:
- You already have a Lady Bird deed as part of your estate plan;
- You do not have a Lady Bird deed as part of your estate plan;
- You aren’t sure if you have a Lady Bird deed as part of your estate plan; or
- You don’t have an estate plan prepared.
We will be happy to meet with you one-on-one, discuss your personal goals and concerns, and then help ensure you have the estate plan that best fits your individual needs. Call us at 810-229-0220 or 969-418-3500 to schedule your appointment today!