How a Texas Lady Bird Deed Form Works
A Texas lady bird deed form combines a traditional life estate deed with a retained power to sell, convey, or mortgage the real estate without the remainder beneficiary’s consent. A Texas lady bird deed allows Texas property owners to avoid probate at death without sacrificing control over the property during life.
A lady bird deed form works by dividing ownership into different time periods. Before signing the deed, the current owner has full, outright ownership of the property (called fee simple ownership). Signing the deed changes this. It divides outright (fee simple) ownership into two legally distinct interests: A life estate, which lasts for the lifetime of the current owner, and a remainder interest, which does not allow possession until the death of the current owner.
In most cases, a lady bird deed transfers the property from and to the same person. Specifically, it transfers property from the current owner (as a fee simple owner) to the current owner (as a life tenant). The person who creates the deed continues to own the property for life as a life tenant. During his or her life, he or she can continue to use the property just as before.
A lady bird deed form also names one or more remainder beneficiaries. These remainder beneficiaries inherit the property at the death of the current owner. This at-death transfer occurs automatically at the death of the prior owner, without the need for probate.
A lady bird deed form also provides an enhanced benefit that makes it particularly attractive to Texas property owners: The person that signs the deed can change his or her mind about the transfer without involving the remainder beneficiaries. This retained control allows the original owner to sell, gift, mortgage, or lease the property. This enhancement distinguishes lady bird deeds from traditional life estate deeds.
Other Names for Texas Lady Bird Deeds
Key Term: Lady Bird Deed. The term lady bird deed comes from a fact pattern used by Florida attorney Jerome Ira Solkoff in his teaching materials. Solkoff would use fictional characters to illustrate the use of this type of deed. One character was former United States President Lyndon Johnson’s wife, Claudia Alta “Lady Bird” Johnson. As Solkoff popularized this type of deed, people began to refer to it as the lady bird deed or ladybird deed instead of the technical name, enhanced life estate deed.
Texas is one of five states that recognize lady bird deeds. The other states that recognize lady bird deeds are Florida, Michigan, Vermont, and West Virginia. In each state, the technical name for a lady bird deed is enhanced life estate deed. The life estate is “enhanced” in the sense that it provides the property owner with more retained control than a traditional life estate deed. A lady bird deed may also be called a ladybird deed (with no space between “lady” and “bird”).
Pros and Cons of Lady Bird Deeds
Texas lady bird deeds provide several significant benefits that distinguish them from other Texas deed forms:
- Avoiding Texas Probate – Texas lady bird deeds are designed to avoid probate. They do so by transferring property automatically at a deceased owner’s death. Because the transfer is complete at the time of death, Texas probate is not legally required. This avoids the delay, cost, and privacy concerns associated with Texas probate.
- Medicaid Asset Protection – Texas lady bird deeds have Medicaid protection benefits. They can preserve Medicaid eligibility during the owner’s life. They can also prevent the property from going to the government at the owner’s death under the Texas Medicaid Estate Recovery Program.
- Retaining Homestead Exemption – Because an owner who creates a lady bird deed retains full control over the property during his or her lifetime, the property retains its Texas homestead This allows the owner to take advantage of the favorable property tax and asset protection exemptions available to Texas homestead.
- Avoiding Capital Gains – Because a lady bird deed does not create a completed gift for federal tax purposes, the owner/life tenant is treated as retaining the property until his or her death. As a result, the remainder beneficiary will receive a “stepped-up basis” for income tax purposes. A stepped-up basis permanently erases any appreciation in the property that occurred before the deceased owner’s death. Stepped-up basis can result in a substantial income tax savings when the remainder beneficiary sells the property.
- Retaining Control – Unlike traditional life estate deeds or outright transfer of the property (such as a joint tenancy with right of survivorship), Texas lady bird deeds allow the owner to retain control over the property. If the owner changes his or her mind or new circumstances arise, the owner has the flexibility to change the transfer without involving the remainder beneficiary.
- Saving Money – The benefits of lady bird deeds could also be accomplished through a Texas living trust. But preparation of a Texas lady bird deed is usually less expensive than the cost of preparing a Texas will or living trust. This can result in substantial lifetime savings to the owner. And because lady bird deeds save probate costs at the owner’s death, the savings can also benefit the owner’s heirs or other beneficiaries.
These benefits make lady bird deeds an attractive option for many Texas property owners.
Relationship of Lady Bird Deed Form to Warranty of Title
Key Term: Warranty of Title. Title issues can be caused by many things, including errors in the public record, unknown liens against the property, undisclosed prior conveyances, forged deeds, missing heirs or unprobated wills, or disputes about boundary lines or surveys. Title issues often require legal action to fix and can decrease the value of real estate. If the property has no title issues, it is said to have clear title. A warranty of title is a legal guarantee from the transferor to the transferee that there are no title issues. If a deed makes a warranty of title, the transferee can sue the transferor over any title issues.
The designation of a deed as a lady bird deed deals solely with the probate avoidance feature of the deed. Other deeds are named after the warranty of title that they provide (or don’t provide). In Texas, these other types of deeds include warranty deeds, special warranty deeds, quitclaim deeds, and deeds without warranty. Because each of these deeds are named after the warranty of title, and because the warrant of title is independent of the probate avoidance feature of lady bird deeds, the same deed may be called by different names. For example, a Texas quitclaim deed may also be a Texas lady bird deed.
How to Create a Texas Lady Bird Deed
Although lady bird deeds are used in Texas and recognized by Texas title insurance companies, they are not authorized by a specific statute. Instead, the exact form for a lady bird deed has been developed by Texas attorneys to meet the requirements of Texas title insurers.
Because the Texas lady bird deed form is not based on a statutory form, it is important to use a lady bird deed form that is customarily used under Texas law. The Texas lady bird deeds created by our Deed Generator are based on well-accepted forms developed by Texas attorneys to help their clients avoid probate at death while retaining control over the property during life.