What is a Lady Bird Deed (an Enhanced Life Estate Deed)?

Understanding the purpose of a Lady Bird Deed is crucial before delving into its specifics. Consider this scenario: your father needs to move into a nursing home, but the costs are beyond his financial means. Medicare does not cover long-term nursing home care, so seeking Medicaid assistance becomes necessary. Medicaid, a needs-based program, requires an individual to have limited assets to qualify—specifically, less than $2,000 in countable assets as of 2024.

One relief is that Medicaid does not consider a homestead, within certain limits, as a countable asset for eligibility. However, there's a catch. If a person receives Medicaid benefits and possesses assets at their passing, Medicaid has the right to reclaim the costs from these assets. This is where the Lady Bird Deed becomes pivotal. It's a strategic legal tool designed to circumvent the Medicaid Estate Recovery Program (MERP) lien. Using a Lady Bird Deed, homeowners can safeguard their property from being claimed by Medicaid for the recovery of benefits paid, thus ensuring the property's seamless transition to their heirs or designated beneficiaries.

Lady Bird Deed Explained:

An Enhanced Life Estate Deed, often called a “Lady Bird Deed,” is a strategic instrument in estate planning. It primarily assists in two ways: firstly, by enabling property to bypass probate, transferring directly to a beneficiary upon the grantor's death, and secondly, by circumventing the Medicaid Estate Recovery Program (MERP) in Texas. The moniker "Lady Bird Deed" originated from an example by Jerome Ira Solkoff, who used Claudia Alta “Lady Bird” Johnson, wife of President Lyndon Johnson, as an illustration in Florida's context, though she never utilized such a deed.

This deed uniquely allows you to transfer your home's ownership while retaining critical rights. She can sell the property, retain the proceeds, and continue residing there, all without affecting Medicaid or federal tax considerations.

Click here to speak with Taylor about creating a Ladybird Deed.

Transfer on Death Deed

Regarding the Transfer on Death Deed (TODD) effective September 1, 2015, Texas law permits property transfer upon death through this deed. The transfer on death deed offers the same benefits of protecting against the MERP lien, but it's distinct from the Enhanced Life Estate Deed and carries several characteristics:

- The grantor can revoke it if mentally capable.

- It cannot be established via power of attorney.

- Recording in the real property's county is mandatory.

- It requires no consideration (value) for effectiveness.

- A will cannot revoke it.

- It's nullified if the grantor's marriage is legally dissolved.

- It doesn't impact the grantor's ad valorem tax exemptions.

- It doesn't alter the rights of the grantor's creditors.

- It doesn't influence public assistance eligibility.

- It avoids triggering mortgage clauses like "due on sale."

- It doesn't invoke real estate disclosure requirements.

- It creates no legal or equitable interest for the designated beneficiary.

- It doesn't expose the grantor's property to the beneficiary's creditors.

Should I use a Transfer on Death Deed or a Lady Bird Deed?

When comparing Transfer on Death Deed and Enhanced Life Estate Deed, your choice depends on your needs. Generally, Transfer on Death Deed is preferable unless you require transfer through a power of attorney or foresee the need to revoke the deed post-incapacitation. One of the main reasons is that many title companies are weary of Lady Bird Deeds. Since a Lady Bird Deed does not need to be filed and can be signed by a power of attorney, it is an instrument that can be fraudulently created. To avoid a potential situation where litigation might occur, many title companies refuse to insure a transaction involving a Lady Bird Deed. However, it is crucial to consult an Elder Law Attorney about which option is best for your family.

Click here to speak with Taylor about creating a Ladybird Deed or Transfer on Death Deed.

References:

- Texas Estates Code §114

- Texas Estates Code §114.057