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  September 10, 2020
Two terms are used in the state of Texas to describe a deed that automatically transfers title to real estate you own on your death—a transfer on death deed and a “Lady Bird Deed” (LBD). The distinction between these two deeds is subtle, but very important.

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Transfer On Death Deed

The state of Texas has approved a statutory form transfer on death deed. This deed allows the passage of real estate upon your death to your desired beneficiaries without the requirement of probate. The person setting up this transfer, called the grantor, retains a life estate in the property to have broad powers of management and ownership while still alive. Upon the death of the grantor, all that is needed to transfer title to the beneficiaries, or grantees, is the filing of an affidavit reflecting the grantor’s death and stating that there are no outstanding debts of the estate.

The statutory form transfer on death deed, however, requires the consent of the beneficiaries to sale of the property, mortgage of the property, revocation of the deed, or changing the beneficiaries during the lifetime of the grantor. Sometimes, the beneficiaries are not willing to agree, and this can cause the grantor substantial problems if situations have changed since the deed was drawn up. 

“Lady Bird Deed”

A “Lady Bird Deed” takes the standard statutory transfer on death deed a bit further in the powers it retains for the grantor or transferor during his or her lifetime. The LBD is not a statutory form provided by Texas law, but it is recognized as an effective transfer on death instrument in the state of Texas.

The LBD allows the grantor to do virtually anything regarding the property during his or her lifetime without the consent of the beneficiaries. The LBD must contain the specific language authorizing the grantor to do these things without the participation of the beneficiaries. With the LBD, the grantor has the best of both worlds—the ability to manage the property fully during his or her lifetime as if the sole owner, but still transfer the property on death without probate.

Benefits Common To Both Forms Of These Deeds

Both the statutory transfer on death deed and the LBD offer benefits in addition to avoiding probate to transfer the property on the grantor’s death. These deeds can be a helpful tool for taking the full value of the real estate out of the determination of the grantor’s eligibility for Medicaid benefits. Only the value of the life estate in the property would be included in the calculation after one of these deeds has been drawn up and filed. 

In addition, at least under current Texas law, the use of one of these deeds protects the real estate from the imposition of a Medicaid lien against the property upon the death of the grantor. If one of these deeds had not been used, and the property was still in the name of the Medicaid recipient at death, the property could be sold for the satisfaction of a Medicaid lien. Many times the Medicaid lien is so substantial that it wipes out the value of the property and the heirs are left with nothing. 

For a fuller discussion of the features and potential benefits of drawing up a transfer on death deed or “Lady Bird Deed,” please see this blog.

If you’re interested in discussing whether one of these deeds should be part of your estate planning package, please contact Adair M. Buckner to schedule a free initial consultation.*

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*The free consultation does not cover actual review of documents or giving legal advice on a specific situation.

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Article Topics:
Wills & Trusts Probate Real Estate