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What is a Lady Bird Deed and can it help your estate plan?

On Behalf of | Oct 21, 2020 | Estate planning |

When planning your estate in Texas, you have many tools at your disposal: Wills, trusts, transfer on death deeds and designated beneficiary plans are just a few in your arsenal. Another versatile tool is the Lady Bird Deed. 

Lady Bird Deeds, or more formally, Enhanced Life Estate Deeds, are useful tools for passing down property while retaining considerable control over it during your lifetime. 

Lady Bird Deeds

As Texas A&M’s law blog explains, traditional life estate deeds offer many of the same benefits as Lady Bird Deeds when it comes to passing down property; however, they can also prevent grantors from selling or leasing the property during their lifetimes. 

Lady Bird Deeds, in contrast, allow grantors to retain nearly all of the powers of property ownership without ever needing to contact the remainderman (eventual recipient) for permission. This includes the right to claim your property as a homestead. You as the grantor may also revoke the deed at any time if you change your mind. 

Keep in mind, however, that selling the property does indeed prevent the remainderman from collecting it after you pass, and other decisions you make concerning the property can affect the inheritance and how it transfers to your desired recipient. 

Benefits and concerns

Lady Bird Deeds offer an impressive array of benefits. They can protect your property from the probate process, help you avoid gift taxes, will not affect your property tax exemptions, and can protect the property from the remainderman’s creditors during your lifetime. Most importantly, Lady Bird Deed properties can avoid Medicaid Estate Recovery and the Medicaid transfer penalty. 

When executing a Lady Bird Deed, be aware that they can negatively impact some mortgage agreements, so verify your terms ahead of time. Also, state law surrounding this device is tenuous. There are currently no statutes addressing these deeds, and case law is slender, so future legislation or court decisions could affect your estate plan. You may want to establish a contingency.