The idiom “An ounce of prevention is worth a pound of cure” applies to lots of scenarios.
Getting a good night’s sleep, for example. Getting a 3,000-mile oil change on your vehicle. Taking an antacid before digging into a brisket dinner at 2M Smokehouse.
It’s also an idiom that applies to estate planning activities, especially when it comes to determining how to handle your real estate assets.
There are many legal vehicles that allow you to arrange for property ownership to be transferred to family members or close friends after your passing—but these aren’t the only benefits that they can offer.
A common vehicle for transferring ownership in Texas is known as a “Lady Bird” deed, which allows you to maintain control of your property now while easing the burden for your beneficiaries later.
How does a Lady Bird deed work?
If you’ve ever had a migraine, you’ve probably taken an extended-release painkiller that delivers therapeutic benefits over time to make sure you get the relief you need throughout the day.
A Lady Bird deed is like an extended-release capsule that treats two different “conditions” for property ownership. Also known as an enhanced life estate deed, a Lady Bird deed splits property owners into two distinct categories:
- The owner (also called grantor or life tenant) reserves the life estate, or ownership, for the duration of their life.
- The remainder beneficiary is granted the remainder interest (or the legal ownership of the property) after the grantor dies.
Benefits of a Lady Bird deed
Lady Bird deeds are a sought-after estate planning strategy for property owners because they allow for greater control over real estate assets. But that’s not the only benefit that they offer. Other advantages of a Lady Bird deed include:
- Simplifies probate
- Preserves the right to use, sell, and profit from property during your lifetime
- Protects Medicaid eligibility (and safeguards property from being used to cover Medicaid benefit costs)
- May help avoid federal gift tax and property tax
Key differences between a Lady Bird deed and a will
If you’re thinking to yourself, “A Lady Bird deed sounds like a regular old will to me,” we hear you. There are many similarities between a will (or estate plan or trust) and a Lady Bird deed. But there are also a few key differences.
Difference #1: probate requirements
The biggest and most important difference is that a Lady Bird deed simplifies the legal process of transferring property after your death. When you pass property to family or friends via a will, they will not become the legal owners until after your estate has gone through the probate process.
If, on the other hand, you want to put your property into a trust, you may not be able to sell or mortgage the property without permission from the beneficiaries.
But Lady Bird deeds are different. Because conditional ownership was transferred before your death, the property never becomes part of your estate. If you retain ownership until your passing, the property will transfer to your remainder beneficiary immediately after your death. (If an owner sells the property prior to death, the Lady Bird deed will be nullified.)
And while a living trust achieves many of the same results as a Lady Bird deed, a Lady Bird deed usually costs less and is easier to file.
Difference #2: clawbacks for debt recovery
Under Texas law, a traditional will or transfer on death deed gives creditors two years to satisfy a deceased property owner’s debt by “clawing back” a portion of the property. This provision makes title insurance companies reluctant to issue clear deeds for up to two years.
A Lady Bird deed can help you and your remainder beneficiary avoid unwanted headaches by keeping the property out of your estate and free from any liens after your death.
Difference #3: legal recognition
Lady Bird deeds are only recognized in Texas, Florida, Michigan, Vermont, and West Virginia. If you live outside this small handful of states, there may be a similar avenue for you to pass on property, such as transfer on death deeds, revocable living trusts, life estate deeds, and (yes) wills.
However, those mechanisms don’t necessarily offer all the same benefits as a Lady Bird deed and may require additional legal considerations.
Difference #4: tax exemptions and benefits
Because properties transferred via Lady Bird deed retain their original Texas homestead exemption and do not qualify as a completed gift, you can retain your property-based asset-protection and tax exemptions while you’re alive—and your beneficiary can avoid paying capital gains taxes if they sell the property in the future.
Difference #5: Medicaid estate recovery protection
If you use Medicaid to help cover the cost of long-term care, it’s common for the state to try to recoup its expenses by making a claim against your assets after your death.
Because a Lady Bird deed keeps owned property out of your estate, Medicaid cannot make a reimbursement claim against it. This will protect and preserve your property for your beneficiary as you intended.
Who can file a Lady Bird deed form?
One of the differences between Lady Bird deeds and transfer on death deeds is who may sign the paperwork.
Transfer on death deeds cannot be signed by anyone other than the property owner. But as long as the Lady Bird deed form is signed in the presence of a licensed notary, Lady Bird deeds can be signed by the owner or the owner’s agent under power of attorney.
This distinction is important; if an owner expressed a wish to pass the property on but became incapacitated before following through, their beneficiaries could end up stuck in a legal quagmire. A Lady Bird deed provides some protection in this respect.
Tips for filing a Lady Bird deed form
As in all things estate planning, handling paperwork yourself can be complex and frustrating. Working with a legal professional to help you create and file your Lady Bird deed can reduce head-scratching and ensure everything is handled correctly so you don’t lose time or money on improperly filed documents.
That being said, recording requirements don’t mandate a lawyer to be involved with the process. If you decide to file a form on your own, here are a few things to keep in mind:
1. Make sure the deed is recorded in the county you live in (where the property is located).
There are many clerk offices in Texas that are close in proximity but serve different counties. As a result, people may put their final wishes at risk by recording Lady Bird deeds in the wrong county.
2. Use the right form
Remember that Lady Bird deeds are based on common law, not a statute. The Texas Lady Bird deed form has been designed to satisfy Texas’s title insurance and real estate law. This was previously codified as a Statutory Transfer on Death Deed.
If your Google search gives you a form from another state, it’s possible that your deed may not hold up to scrutiny.
3. Fill out the form carefully
Make sure you understand what each question on the form is asking and answer it fully and completely. For example, a Lady Bird deed form will ask for a legal description of your property. This isn’t the street address, nor should it be whatever was on the last deed filed for your property.
Instead, it should include lot and block numbers, metes and bounds markers, survey information, and other information that defines exact boundaries regardless of zoning or street name changes.
4. Work with an estate planning attorney
Estate law statutes and precedents are always changing—which means case law related to Lady Bird deeds could do the same.
Working with a Lady Bird deed attorney who understands the nuanced differences between property transfer vehicles gives you the best chance of having your wishes fulfilled in the future. It allows you to rest assured that your forms will be filled out accurately and efficiently, avoiding any unnecessary delays in the process.
Consult with our experienced Texas estate planning attorneys
Estate planning can be a complicated and emotionally taxing process, but it doesn’t have to be. Our experienced, compassionate team at the law firm of Shann M. Chaudhry Esq., Attorney at Law PLLC is here to help you guarantee that your intentions and desires are honored after you pass on.
If you’re ready to get started, contact us today.