Use This Slick Trick To Transfer Real Estate Without Probate In Texas

For many people, their residence or other real estate comprises the biggest part of an estate that normally would require probate to pass title. Texas law allows a slick trick to transfer title to real estate you own on your death without probate.

Texas law has recognized an estate planning tool that is extremely effective to help avoid probate and is low cost, called a “Lady Bird” Deed (LBD). There is a similar deed called Transfer on Death Deed (TODD) or a Deed with An Enhanced Retained Life Estate (there is a slight distinction between the two). 

The LBD or TODD can be used for all types of real estate interests, including mineral interests, in Texas. (A number of other states have also adopted this tool, so it is possible that you can use it for such interests in other states, too.) If you have drawn up one of these deeds prior to your death, you might be able to avoid probate entirely if the rest of your assets pass by beneficiary or payable-on-death arrangements.

With these types of deeds, you can name the beneficiaries you wish to receive real estate or mineral interests on your death. They are called “remaindermen”. However, you retain all of the benefits of ownership of the property until your death. Texas law allows you to retain the property tax homestead exemption on your home after the transfer. 

Upon your death, all that is required for the full title to be transferred to your beneficiaries is the filing of an "Affidavit of Death" in the county property records where the property is located:

1. Reflecting the date of your death,
2. Referring to the recording information for the LBD or TODD,
3. And reciting that there are no outstanding debts of the estate (other than a mortgage against that property), and no estate or inheritance tax due. 
   
   

The Benefits Of A Lady Bird Deed Or Transfer On Death Deed

Your Rights of Ownership Are Retained During Your Life

The Lady Bird Deed, if drafted properly, allows you, as the owner of the “life estate” in the property, to mortgage, lease, or sell the property, change your beneficiaries, or even revoke the deed, without the consent of the remaindermen. (The TODD does require the consent of the remaindermen.) This unique special feature of the LBD is not recognized in all states, however, so out-of-state property may or may not be dealt with in this same manner. Your attorney will need to research whether this deed can be used in the same way in other states. 

Saves Time, Trouble, and Expense

The LBD or TODD makes the transfer of title to your beneficiaries on your death much quicker. They may also eliminate the trouble and expense of probate to transfer title to real estate on your death. The expense savings can amount to thousands of dollars. 

Medicaid Qualification

If you are in a situation in which you are applying for Medicaid benefits, the LBD or TODD may also be beneficial. The value of your interest in the property (your life estate) will be much less than the full value of the property in calculating your eligibility for Medicaid. This may make the difference between qualifying and not qualifying, or for how long you are disqualified from receiving benefits.

Medicaid Lien Avoidance

This can be a big benefit. If you received Medicaid assistance during your lifetime, which has not been repaid, the federal government can place a lien on the property of your estate for the amount paid on your behalf. A major benefit of using an LBD or TODD is that it places the property beyond the reach of a Medicaid lien. Again, Texas law may differ on this point from that of other states. Also, Texas law on this issue could change in the future. You should consult with an attorney about whether this lien avoidance is still available.

When To Consider Using The Lady Bird Deed Or Transfer On Death Deed

You can use these forms of deeds at any time. You can take title to property with only the enhanced retained life estate when you first acquire property or change how the title is held to this form at any time prior to your death. I frequently explore the benefits of doing this whenever I visit with clients about their general estate planning. It has become a key tool in Texas for making the passage of real estate or minerals on your death as easy and inexpensive as possible. This trick is also beneficial for Medicaid aspects. 

How To Get Started 

The use of this estate planning tool is something that should be explored with an attorney because of its potentially huge benefits. If you would like to discuss the possibility of including such a deed in your estate plan, 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.)

** This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal, or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.

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