I'd ditch the idea of stepping stones and gravel as it would be temporary and messy. It's not that difficult--or expensive--to form up and place a small amount of concrete and if you used that, you'd have something durable and lasting. Nothing against concrete pavers on a well tamped base so that's another option, too. Per usual, I'm submitting my suggestions in pictorial form so they're mostly self-explanatory. The returning branches ... I'm showing how they're going to be at the end of summer. Better to cut off some low-hanging limbs sooner than later (since you know it's coming) and get rid of some of the "gloom effect" that the heavy shade produces. For a groundcover, you might look into Calyptocarpus vialis, which goes by several common names. Plants are what hold soil and keep it from washing, so if you used groundcover below the tree in the shady area, you could eliminate the soil washing problem.

Well you don't want anything bigger than a small tree or maybe shrub like lilac. What are your design requirements? If you were contemplating spring flowers, there are probably a number of options like star magnolia, lilac, viburnum, etc...

Better pics: Front view: This faces east but at an angle (north east). The front gets 6+ hours of sun. The front-left side bit where chair frames can be seen is 84x110 inches. This is blank right now. I would like to add some perennials like Echinacea (pow wow wild berry) and annuals in varying heights. But undecided on which side the tall plants should face. The right side bit is 147x165 inches. Currently there are two knockout roses, a Coreopsis, Sedum kamtschaticum on this side (As seen in the original post's 2nd pic). I want to remove them and add a bench under the window. Maybe have a little walking path to the magnolia with the rest being a little butterfly garden. (There is a little park and some shops in front of this so its nice to sit and people watch) There is a bit of 15 inches space in front of the fence. In this space, I was wondering if I can add perennials likes Shasta daisy (snow lady), Sage (Merleau Blue), Coreopsis (Sunfire, Rising sun or Moonbean) or I might just add annuals like petunia. Side view: The sun to side yard is blocked a little by the magnolia on the side. It gets about 2-3 hours of sun. I measured the side bed, it looks small in this angle, but it is 72 inches (where it tapers) The front bit where it looks wider is 100inches) The spireas are 15 to 30 inches away from the wall of the home. Is that too close? I guess I was seduced by the lush side yard photos of houzz :) so want to plant a lot more even if it is not visible from front. If I remove spireas, was thinking a mix of hydrangeas, shade perennials and annuals. Cannot really see much from the front because the magnolia blocks the view. These are probably all very foolish ideas. I am so embarrassed as I type this. Please talk some sense into me!

I'd plant it up with native ground covers. Common violets are pretty, as is tiarella --- you want the spreading kind, not the clumping.