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—transfer on death deed and a “Lady Bird Deed” (LBD). The distinction between these two deeds is subtle, but very important.
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, also 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 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.
To qualify for probate as a muniment of title (“MT”), the applicant must swear to the court that there are no unsatisfied debts of the estate, except liens against real property. This is the primary difference between a regular full probate being required and the MT probate. Other standard facts relating to the deceased person also must be included in the application.
“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 statutorily authorized, 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.
Benefits Common To Both Forms Of These Deeds
Either the statutory transfer on death deed or the LBD offer benefits in addition to avoiding probate to transfer the property on the grantor’s death. Both 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, 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.*
*(The free consultation does not cover actual review of documents or giving legal advice on a specific situation.)