A Lady Bird Deed, also known as an enhanced life estate deed, is a special kind of deed recognized in only five states. Fortunately, one of those states is Texas. The lady bird deed can be advantageous for Texans who wish to leave a property inheritance to their beneficiaries. This article is presented by the estate planning law firm of Holman Law LLP located in Dallas, Texas. Read on to learn more about lady bird deeds and their benefits in Texas estate planning.
What Is A Lady Bird Deed?
The five states that recognize lady bird deeds are Florida, Michigan, Vermont, West Virginia, and Texas. This is good news if you’re a Texan considering your legacy and which estate planning tools will best accomplish your wishes for passing along your estate. Lady bird deeds in Texas allow you to retain ownership and control of your property during your lifetime, while also providing for the transfer of the property upon your death. Lady bird deeds can be used to avoid probate, to keep property out of creditors’ hands, and to provide for your loved ones.
Advantages
Bypass Probate – A common concern in estate planning is how to avoid probate. Not surprising, as probate court is an expensive and lengthy process. Court fees and associated costs can potentially drain an estate’s assets. A lady bird deed in Texas can accomplish the goal of bypassing probate. When the original property owner, or grantor, passes away, the property is automatically transferred to the designated beneficiary. Therefore, the property which is often a significant asset in an estate, isn’t subject to the expensive costs and lengthy delays that are typical of probate. Furthermore, the property wouldn’t be subject to creditors’ claims as it would if part of an estate in probate. Additional information about probate can be found here.
Continued Control – Another significant advantage is the ability to retain control of the property.The grantor may continue to reside in the home and may receive financial benefits from the property. The grantor may lease the property, make changes to it, or sell it, without the beneficiary’s involvement. This continued control is a very attractive feature for many Texans when planning their estates.
Flexibility – Lady bird deeds are revocable by the grantor by filing a document of revocation. Additionally they can be revoked if the grantor files a subsequent lady bird deed with a different beneficiary. As the grantor, you have flexibility to change your mind and can adjust the deed according to your new wishes.
Medicaid Eligibility and Medicaid Recovery – A lady bird deed should be considered when applying for Medicaid benefits. While a primary residence is usually not countable for Medicaid eligibility, the property could be subject to a Medicaid claim later on. A lady bird deed can protect the property from a Medicaid claim, ensuring its transfer to the intended beneficiaries.
Tax Benefits
Lady bird deeds can offer some attractive tax benefits including the following:
Stepped-Up Valuation – Upon your death, when the property title transfers to your beneficiaries, they’ll receive it at a stepped-up basis. If your property has appreciated since you purchased it, this will decrease your beneficiaries’ future capital gains tax liability.
Homestead Exemption – The Texas Homestead exemption is a savings of 20% to 30% of your property taxes. This is meaningful since Texas property taxes are some of the highest in the nation. Since the grantor controls the property during his or her lifetime, it preserves the Texas homestead exemption.
Comparisons To Some Other Estate Planning Documents
Transfer On Death Deeds – Transfer on death deeds (TODD) and lady bird deeds have some similar advantages. With both types, the grantor can name beneficiaries to whom their property automatically passes upon their death. Additionally, a TODD offers greater flexibility in how a property can be passed upon the owner’s death, similar to a will. However, a TODD cannot be executed by the owner’s agent under a power of attorney, while a lady bird deed can. This is important when a family is planning for Medicaid and wants to avoid a Medicaid claim even if the Medicaid applicant is unable to sign documents themselves.
Revocable Living Trust – Like lady bird deeds, revocable living trusts also accomplish the goal of avoiding probate. Likewise, they afford the grantor control and flexibility during their lifetime. A revocable living trust is typically more complex, as it can encompass all of the grantor’s assets, not just the primary home. If your primary residence makes up the majority of your net worth, a lady bird deed might make sense. This is because the costs associated with establishing it are typically less than those of a revocable living trust. However, if you have significant assets of varying types, such as financial investments, business interests, and valuable personal belongings, plus your primary home, a revocable living trust might be best.
For Medicaid eligibility, however, a primary residence owned by your revocable living trust is a countable asset. So for Medicaid planning purposes, a lady bird deed or transfer on death deed would be a better option.
The estate planning documents that are right for you depends on your personal assets, unique circumstances, and your wishes. An estate planning attorney can help you decide which tools are best for you and your family.
Speak With An Estate Planning Attorney
If you want to know more about lady bird deeds and if they make sense for your estate plan, you should speak with an experienced estate planning attorney. There are many considerations to factor in. Estate planning can be quite complex, depending on your particular set of circumstances and desires for your estate. A Texas attorney who specializes in estate planning can help you balance the pros and cons of each potential strategy.
Attorney Steven C. Holman is a Texas estate planning attorney with over fourteen years of experience. His firm, Holman Law LLP, is located in Merit Tower, in Dallas. If you live in the Dallas/Fort Worth area and need assistance with estate planning, please contact us. You can call us at (972) 474-7828 or reach out via our website. We welcome the opportunity to speak with you and assist you with your estate plan.
