Avoiding frustrations is a big part of life as a grown-up. Whether you’re a newly minted adult or have been at it for several decades, there are all kinds of strategies for sidestepping situations that result in aggravation. Consider these: setting your bills to autopay, scheduling your dentist appointments in advance, and investigating that “check engine” light the moment it comes on. 

Avoiding frustrations is also a big part of estate planning. Hence, legal tools like the Lady Bird Deed and Transfer on Death Deed.

The Lady Bird deed—also known as an enhanced life estate deed—allows you (the grantor) to transfer property to a beneficiary (the remainderman) upon death. Many Texans take advantage of this useful estate planning tool because it allows them to retain rights to occupy, rent, or sell their property while living. 

The best part is that it helps you minimize the frustration of probate and can even help with Medicaid eligibility.

But just like any tool, the Lady Bird deed has its limitations. There are four situations where a Lady Bird deed might not be the best fit for your estate planning needs. 

When you need to consider flexibility

While a Lady Bird deed can be amazing if you want to transfer property to your remainderman, it’s not the most flexible option out there. So, each time your circumstances change, or you change your mind about who you want to inherit your property, you’ll have to create a new deed or file a Revocation.

In situations where you need more flexibility, have multiple properties, multiple heirs, a revocable living trust or last will and testament are best.  You will also have an Executor or Trustee in charge of maintaining the property, listing the property, and making sure everyone gets their fair share under the Will or Trust. 

When you’re concerned about tax benefits

While a Lady Bird deed can help your remainderman avoid probate, it can affect taxes. That’s not to say it doesn’t have any tax benefits at all. 

A Lady Bird deed offers tax advantages such as a step-up valuation system. your designated beneficiary sells the property after it passes to them, taxes are based on the home’s estimated market value. They get the benefit of a step up in basis at the time of death. If you gift the property outright, you do not get the step up in basis at death. 

Generally a Lady Bird Deed or Transfer on Death Deed will not affect your property taxes, if you have exemptions.  You may need to check with your local taxing authority and refile the exemptions to make sure they are still in effect.i 

When you want more than one beneficiary

A Lady Bird deed can transfer property to a single beneficiary while maintaining complete ownership and rights to the property and avoiding probate. 

But what if you want to leave your property to multiple people?

In this situation, a Lady Bird deed might not be the best option. 

While you can name multiple beneficiaries, things can get messy quickly because the deed doesn’t specify your wishes for the property. Your remaindermen will have to agree on what to do with it, which can lead to family disputes or even selling or mortgaging the property against your wishes. (In fact, in our experience at The Law Offices of Shann M. Chaudhry, we’ve seen this cause a huge amount of discord in families.) 

In this situation, it may be best to work with an estate planning attorney to draft a trust or traditional will to distribute your property to multiple beneficiaries: 

• A trust lets you specify exactly who you want to leave your property to and how you want it divided. You can even set up ongoing distributions over time. 
• A will allows you to leave specific assets to specific beneficiaries, giving you more control over how your property is distributed.

When title insurance comes into play

Title insurance can help protect property buyers and lenders from potential legal issues or defects in the property’s title, ensuring a clear and marketable title. It also helps cover risks like unpaid liens, encroachments, or other title discrepancies that could impact ownership.

However, in Texas, the interaction between title insurance and Lady Bird deeds, or enhanced life estate deeds, can create complications for property owners. Despite legal support for the grantor’s rights, title insurance companies may hesitate to fully recognize these deeds. 

This hesitation arises from misunderstandings about the grantee’s contingent interest in Lady Bird deeds. This can complicate obtaining clear title insurance when the grantor sells the property. Consulting an experienced estate planning attorney can help navigate these issues and ensure proper handling of Lady Bird deeds in relation to title insurance.

Knowing which estate planning tools are right for you

Despite its advantages, a Lady Bird deed may not be enough in some situations. So, how do you choose the right estate planning tool for your unique needs? Here are a few factors to consider:

• Goals: Is your primary concern avoiding probate, minimizing taxes, or maintaining flexibility?
• Assets: What types of assets do you own, and how are they titled? Some assets, like life insurance policies and retirement accounts, may require special planning.
• Health: Do you anticipate needing or desiring long-term care in a nursing home or at home, or are you in good health?
• Family situation: Do you have a spouse, children, or other beneficiaries you want to provide for or pass assets down to? Are there any anticipated changes in your family situation in the future?
• Level of control: Are you comfortable giving up some control over your assets during your lifetime, or do you prefer to maintain as much control as possible?

By considering these factors and discussing them in detail with your estate planning attorney, you can create a tailored estate plan with the perfect tools to protect your real estate assets, care for your loved ones, carry out your wishes, and build generational wealth.

Learn more from our Texas estate planning attorneys

Deciding which estate planning tools are best for your situation can be confusing, overwhelming, and complicated. And drafting a Lady Bird deed yourself, then being sure to file it correctly, can leave you open to errors with potentially drastic consequences.

By working with an experienced Texas estate planning attorney specializing in Lady Bird Deeds like those here at The Law Offices of Shann M. Chaudhry, ESQ., you can explore all your options and create a comprehensive plan tailored to your needs and goals. 

Our law firm is dedicated to helping you preserve and pass on what’s important to you through comprehensive estate planning. Our team of skilled attorneys will take the time to understand your situation, answer your questions, and guide you through creating a legally sound plan that works for you.

Contact our offices today to schedule a consultation and learn more about how we can help you protect what matters most.