The Lion Cub deed is an elusive creature. It is fleetingly mentioned on the web sites of some Michigan estate planning and real estate attorneys, but there is very little detail provided at any of them.
The idea, it appears, is to structure real estate ownership so that one party (the "lion," typically the parent who originally owns the land) owns a high majority share of real estate, 90% to even 99%, while the small conveyed percentage passes to the other (the "cub," typically the child or children of the original owner). This conveyance is an event that would generate a divestment penalty if done within the 60-month lookback period that applies for Medicaid coverage for nursing home expenses, but the fact that only a small fraction of ownership is divested means that the disqualification period would be quite short. If the land in question is worth $400,000, for example, conveying a 1% interest would result in a divestment penalty of $4,000, well under the cost of one month of nursing home care.
The problem is that these conveyances may not be made in a manner which is effective under Michigan law. The strategy does not work if done using joint tenancy as the ownership vehicle. The "lion" and the "cub" must take ownership as tenants in common, not as joint tenants, if they want to create a proportional ownership. Yet we have seen promotional materials in attorneys' offices which say that the deed will be done to convey the land "in joint tenancy" with a 90-10% or 99-1% split. The promise is that the client can get the best of both worlds - probate avoidance and avoidance of Medicaid divestment penalties.
The concept described simply does not exist under Michigan real estate law. There is no such thing as a joint tenancy with an assigned ownership percentage. The interests of each co-owner must be equal under a joint tenancy. Further, although clients may think otherwise, two people who own land in joint tenancy do not each own 50%. Four joint owners do not each own 25%. (The fact that taxing authorities or the agency administering the Medicaid program might treat it that way does not change this rule.) Instead, each owns an equal and undivided interest in the entire parcel of land, with a right of survivorship among all co-owners. As each joint owner dies, his or her interest in the parcel ends. The survivor among all joint owners emerges as the full owner of the entire parcel.
It is hard to understand what benefit a landowner would derive from conveying a tiny percentage of ownership, as a tenant in common, to one or more of the landowner's children. Joint ownership of real estate is a method that is widely used to avoid having the land pass by will or intestacy in probate court - see our earlier posting entitled "Reasons Not to Do It" - but it is entirely inconsistent with the idea of fractional or proportional ownership of real estate. Conveying a parcel of land to a parent and child as tenants in common, with a significantly disproportional ownership balance, may be effective to avoid Medicaid penalties when nursing home care is needed, but it does nothing to avoid probate. The 90% or 99% interest of the parent, owned by him or her as a tenant in common with the child, would still have to be assigned under a will or pass by intestacy, and this would require a filing in probate court. Depending on how many children are involved in the two transactions, the end result could be quite complex.
Each of these approaches may work to achieve a desired result, and each should be explained by counsel. But confusing the two is likely to lead to unexpected and unplanned consequences.
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