What is a Lady Bird Deed in Texas?

What is a Lady Bird Deed? What are the benefits of using a Lady Bird Deed to transfer real property such as a home? Are there down sides to using a Lady Bird Deed? These are questions that just about everybody who is not a lawyer has when they encounter a Lady Bird Deed as a creator or a beneficiary. Beginning your search on the internet searching for “Lady Bird Deed Forms in Texas” and the like may yield different and overwhelming results. This post is designed to help outline some important aspects of a Lady Bird Deed and help make sense of what can be a very confusing topic.  

A Lady Bird Deed is used by people who want to avoid probate.  A Lady Bird Deed avoids probate with a tool known in the legal world as a Life Estate. A Life Estate is where you give someone property to live at for their lifetime, but you are not transferring actual ownership to them.  You are giving them the “estate” (or, the property) for their lifetime.  After their lifetime is over, the property then passes to the true owner.  

Avoiding Probate using a Lady Bird Deed

Technically, the “Lady Bird Deed” is an enhanced life estate deed used to transfer property to beneficiaries outside of probate. This type of deed allows the current property owner to transfer property while retaining her own life estate in said property.  This way, she still gets to live there, but knows that she has already set up the transfer of ownership upon her death.  This saves thousands of dollars in attorney’s fees & court costs that would be incurred from probating her estate.  The Lady Bird Deed also provides several other benefits, such as the power to sell the property and keep the proceeds from said sale, or to transfer or mortgage the property without the beneficiary’s consent. (ARTICLE:TRANSFER ON DEATH DEEDS IN TEXAS: HIGH TIME FOR THE TODD, 9 Tex. Tech. Est. Plan. Com. Prop. LJ 59, 72.).

A Lady Bird Deed is also commonly used by recipients of Medicaid who want to ensure that the Government will not receive any portion of their “estate” (such as their house) after their lifetime. Normally, the state can recover against an individual’s home for any costs incurred during her stay in a Medicaid facility. By using a Lady Bird Deed however, this may be avoided. A Lady Bird Deed allows a Medicaid recipient to deed her home to a family member or close friend, while still being able to live on the property during her lifetime. For Medicaid purposes, the Medicaid recipient no longer technically owns the house after death, and Medicaid Estate Recovery Program (MERP) cannot file against a person if that person owns no property. Therefore, so long as the deed is drafted and filed correctly, the home and land can be protected from recovery claims by the Government. DEPARTMENT: CLIENT PAGE: HOME SWEETHOME: MAKING SENSE OF MEDICAID RECOVERY., 80 Tex. B. J. 128, 128.

Lady Bird Deeds and Medicaid

Aside from the benefits a Lady Bird Deed provides to Medicaid recipients, it also offers several non-Medicaid advantages over a traditional Life Estate. Firstly, an individual using a Lady Bird Deed can designate who should receive the house upon her death. This flexibility does not exist in a traditional Life Estate and is extremely beneficial. Second, property transferred by Lady Bird Deed will not be affected if a remainder beneficiary gets divorced. If a traditional Life Estate was used, the ex-spouse of a divorcee may still be entitled to a portion of your home after your lifetime. Lastly, the transfer will not be subject to gift tax and no gift tax return needs to be filed when using a Lady Bird Deed. This will save thousands of dollars in gift taxes that would otherwise have been paid by the homeowner wishing to transfer her property. Texas Estate Planning (James Publishing) § 5:115.

A Lady Bird Deed offers many advantages to those who are informed as to its utility and prepared to make use of it. A Lady Bird Deed can be a very powerful tool, which when used correctly may help to avoid probate, and save thousands of dollars which would otherwise be needed to pay court costs and attorney’s fees. Overall, Lady Bird Deeds have a lot to offer, from avoiding probate to avoiding recovery against a home, and most of all in saving clients’ money in what could otherwise be a very lengthy, and expensive endeavor. More information on real estate services can be found here on our real estate law page.

If you have any other questions about Lady Bird Deeds, please call our office (281) 970-8039) to set up a time to talk.  We are conveniently located for serving our clients in Tomball, Spring, Cypress, and Magnolia.  

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