What is a Lady Bird Deed?
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Texas is one of only five US states that authorizes a Lady Bird deed. This type of deed allows a property owner to transfer ownership to a beneficiary at their death, seamlessly, without going through probate.
Lady Bird deeds are becoming increasingly popular as an estate planning tool due to the benefits it offers. Below is a breakdown of what a Lady Bird deed is, how it works, who uses it, its advantages and disadvantages, and answers to common questions about this type of deed.
What is a Lady Bird Deed?
A Lady Bird deed is considered an enhanced life estate deed, as it offers more control to the property owner while they are still alive, compared to a regular life estate deed. With a typical life estate deed, the owner can live on the property until their death. Then the property immediately transfers to the beneficiary named in the deed, avoiding the probate process.
A Lady Bird deed provides all of the same benefits as a traditional life estate deed, but with a Lady Bird deed, the owner maintains more rights to the property while they are still living. These rights include being able to collect income from the property, mortgage or sell the property and keep the proceeds, and revoke or amend the Lady Bird deed.
In case you are curious, it got its name because President Lyndon B. Johnson used this type of deed to transfer property to his wife, Lady Bird Johnson, and the nickname stuck.
How do Lady Bird Deeds Work?
A Lady Bird deed is designed to transfer real estate assets while allowing the owner to maintain control of the property for the remainder of their lifetime. This deed also enables the property to be transferred upon the owner’s death without the hassle of going through probate or other court proceedings.
With a Lady Bird deed, the current owner can also mortgage, rent out, or sell the property without the beneficiary’s consent. This is the opposite of traditional life estate deeds, where the owner has less control over the property. And, while the original owner is still alive, the beneficiary has no rights to the property, nor can they make decisions concerning the property.
Lady Bird deeds are only authorized in Texas, Florida, Michigan, Vermont, and West Virginia. Other states use a transfer on death deed, similar to a Lady Bird deed, but with a transfer on death deed, the current owner cannot mortgage or sell their property. Texas allows for both types of deeds, so property owners can choose which one to use, or use no deed at all and leave their property to heirs in their will or trust.
Who Uses Lady Bird Deeds?
Elderly couples typically use Lady Bird deeds to ensure that the surviving spouse will retain control over the property when the other spouse passes away.
When doing estate planning, individuals of any age may choose a Lady Bird deed so their beneficiaries can avoid probate and other potential delays or hassles that can take place with the transfer of property ownership.
Advantages of Lady Bird Deeds
Lady Bird deeds offer these advantages for property owners:
- Avoid Probate: It streamlines the process of transferring property automatically to your beneficiaries without going through the probate process.
- Maintain Control: The owner maintains the right to sell, rent, or mortgage the property without the beneficiary’s consent.
- Flexibility: It can be used to transfer only a portion of the property, and the owner can amend (i.e., change beneficiaries) or revoke the deed as needed.
- Retain Homestead Exemption: As the owner has complete control of the property during their lifetime, they can retain the Texas homestead tax exemptions.
- Avoid Medicaid Estate Recovery: Under Texas Medicaid rules, properties that transfer outside of probate are generally exempt from Medicaid Estate Recovery claims. As the Lady Bird deed avoids probate, your beneficiary may be able to avoid paying the Medicaid claim.
Disadvantages of Lady Bird Deeds
There are some drawbacks to Lady Bird deeds, so keep these in mind:
- Limited to Real Property: Lady Bird deeds can only be used to transfer ownership of real property. All other assets must be transferred separately through a will or trust.
- Medicaid Eligibility: With a Lady Bird deed, the property is not considered a countable asset so it could affect the owner's eligibility for Medicaid.
- Tax Implications: It’s recommended to consult with a tax professional to see if there will be tax implications with your Lady Bird deed.
- Harder to Get Title Insurance: Title insurance companies may be reluctant to insure a property with a Lady Bird deed, especially when multiple beneficiaries are on the deed.
Using a Lady Bird deed to transfer property upon an owner’s death has its benefits and drawbacks. Therefore, it’s always best to consult with an attorney to determine if this type of deed is right for your specific situation and estate planning needs.
FAQs on Lady Bird Deeds
Can a Lady Bird deed be contested?
Yes, a Lady Bird deed can be contested if it was executed fraudulently, under duress, if the grantor lacked capacity when executed, conflicts with legal rights, or lacks the required formalities.
Are Lady Bird deeds legal in Texas?
Yes, Texas is one of five states where Lady Bird deeds are legal.
Which states allow Lady Bird deeds?
Lady Bird deeds are currently allowed in Texas, Florida, Michigan, Vermont, and West Virginia.
Can a Lady Bird deed be revoked or changed?
Yes, while the original property owner is still alive, they may revoke or change the Lady Bird deed if needed.
Does a Lady Bird deed have to be recorded?
For a Lady Bird deed to be effective, it must be executed by the grantor and recorded in the county where the property is located. However, the deed can be recorded after the grantor's death, and the beneficiary will still have a clear title as long as everything is executed correctly.
How do you file a Lady Bird deed in Texas?
You'll need to fill out a Lady Bird form, then file it with the register of deeds for the country where the property is located. The Texas Lady Bird deed form is not based on a statutory form, so you'll want to ensure that the form you use is customarily under Texas law. An attorney can draft it, or you can do it yourself with a legal template form found online.
What is the difference between leaving a house in a will vs. a Lady Bird deed?
A Lady Bird deed is for the transfer of real property only, whereas a will is much more comprehensive. A will details how you want all your assets distributed upon your death and other instructions, like who will care for your minor children, pets, and more.
A Lady Bird deed may be better if you leave your house to only one beneficiary. If you want to leave your home to multiple beneficiaries, you can put that in a will and request that the executor sell the property and split the proceeds among your multiple heirs. Therefore, it’s best to speak with an attorney to determine which is best for your situation.
Can you use a Lady Bird deed on a mortgaged property?
Yes, a Lady Bird deed can be used on a property with a mortgage.