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Lady Bird Deeds In Texas Estate Planning

A Lady Bird Deed, an enhanced life estate deed, is a special deed recognized in only five states. Fortunately, one of those states is Texas. The lady bird deed can benefit Texans wishing to leave their beneficiaries a property inheritance. In this article, I explain what lady bird deeds are and their benefits in Texas estate planning.  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?

Florida, Michigan, Vermont, West Virginia, and Texas are the five states that recognize lady bird deeds. 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 help you avoid probate, keep property out of creditors’ hands, and provide for your loved ones. As a Texan, consider your legacy and which estate planning tools will best accomplish your wishes for passing along your estate

Advantages of a Lady Bird Deed

Bypass Probate

A common concern in estate planning is avoiding probate. 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 an original property owner or grantor passes away, the property will be transferred automatically 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 typical of probate. Furthermore, the property wouldn’t be subject to creditors’ claims as part of an estate in probate.

Continued Control

Another significant advantage is retaining control of the property. The grantor may continue residing in the home and receive financial benefits from the property. The grantor may lease the property, make changes, 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, the grantor can file a subsequent lady bird deed with a different beneficiary. As the grantor, you can change your mind and adjust the deed according to your new wishes. 

Medicaid Eligibility and Medicaid Recovery Claims – 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 after death. A lady bird deed can protect the property from a future Medicaid claim to recoup expenses and ensures the 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 on a stepped-up basis. If your property has appreciated since you purchased it, this will decrease your beneficiaries’ future capital gains tax liability. To calculate the gains, subtract the stepped-up basis or fair market value of the home at the date of the grantor’s passing minus the sale price received by your beneficiary.

Homestead Exemption

Texas property taxes are some of the highest in the nation. The Texas Homestead exemption will save you 20% to 30% of your property taxes. Since the grantor controls the property during their lifetime, it preserves the Texas homestead exemption.  

Frequently Asked Questions

Lady Bird Deed vs 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. 

A lady bird deed only makes sense if your primary residence makes up most of your net worth. The costs of establishing a lady bird deed are typically less than a revocable living trust. However, a revocable living trust might be best if you have kids and/or various significant assets, such as financial investments, business entities, valuable personal belongings, and a primary home. 

What are the disadvantages to a Lady Bird Deed?

A lady bird deed can be at a disadvantage, despite a smooth transfer, creditors can still try to recover expenses–causing stress to the beneficiary of the property. Even though a lady bird deed is revocable, it can be disputed after the grantor’s death when there’s a change of beneficiaries after the initial filing. Other issues that may arise are co-ownership issues, back taxes, and no asset protections. There are also many administrative and efficiency issues to consider.

Transfer On Death Deeds vs Lady Bird Deeds?

Transfer on Death Deeds (TODD) and lady bird deeds have similar advantages. With both types, the grantor can name beneficiaries to whom their property automatically passes upon their death. After the owner’s death, a TODD offers greater flexibility in how a property is inherited, similar to a will. 

However, a TODD cannot be executed by the grantor’s agent under power of attorney, while a Lady Bird Deed can. Another disadvantage to a transfer on death deed, it’s not exempt from claims from creditors to resolve outstanding debts.

Can a Lady Bird Deed help you qualify for Medicaid?

Since a revocable living trust owns your primary residence it’s considered a countable asset for Medicaid eligibility. Therefore, a ladybird deed or transfer on death deed can be a better option for Medicaid planning purposes. 

How can I avoid the Medicaid Expense Recovery Program (MERP)? 

After death, the recipient of Medicaid benefits no longer owns the home, therefore MERP cannot file against a person if that person doesn’t own anything. Prior to the grantor’s death, the deed will need to be drafted correctly and filed with the county. Only then will the home and land be protected from recovery claims.

When to speak with an estate planning attorney

An estate planning attorney can help define your objective and evaluate your needs on a case-by-case basis. A thorough evaluation of your estate can reveal what other options there are to consider. Choosing the most compatible estate plan depends on your assets, unique circumstances, and wishes. Consulting an estate planning attorney can help you decide which tool is best for you and your family. 

If you want to know more about lady bird deeds and if they make sense for your estate plan, speak with an experienced estate planning attorney. There are many considerations to factor in before you make a decision. 

Request a free consultation with our attorneys

Estate planning can be complex, depending on your particular set of circumstances and desires for your estate. A Texas attorney specializing in estate planning can help you balance the pros and cons of each potential strategy. 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 get in touch with us. You can call us at (972) 474-7828 or fill out the contact form on our website. We welcome the opportunity to speak with you and assist you with your estate plan.

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