What is a ladybird deed?
Lady Bird Deeds are also known as revocable life estate deeds or enhanced life estate deeds. Essentially, it is a deed that conveys property but reserves a life estate for the owner (aka grantor). The owner retains control over the property and has rights to lease, mortgage, and sell the property, as well as keep all income produced by the property without permission from the remainderman (aka grantee or the person whom the property is being conveyed to). Additionally, the owner can revoke or amend the deed and when the owner passes away, the title is vested with the grantee (also known as the person the property is conveyed to) subject to any interest conveyed or created by the owner during his/her life.
What is a Transfer of Death Deed?
Under the Texas Estates Code, a TODD allows owners to keep ownership rights during his/her lifetime and allows owners to transfer ownership of real property to the beneficiary after the owner's death and was created as a simple and inexpensive alternative to probate. A TODD is not superseded by a will, meaning it trumps the will. A TODD should explicitly state that title to real property will not transfer to the beneficiary until the original owner's death. A TODD should also include the beneficiar(ies) name, legal description of the property, dated, signed, notarized, and recorded in the real property records where the property is located. After the owner’s death, a proof of death certificate and an affidavit of death must also be signed, notarized, and recorded by the beneficiary. At any time prior to the owner’s death, the owner may terminate the TODD or redesignate the beneficiary or beneficiaries. A TODD can trigger the due on sale of a Deed of Trust (DOT) clause or related clause after the transfer of property and does not affect the interest of current or future lien holders.
Reasons to use a TODD?
A TODD does not affect the rights and control of the owner such as leasing, taking out a mortgage, or transferring ownership of the property after his/her death. It also allows him/her homestead rights such as property tax exemptions, this is because the property will not transfer ownership until the owner’s death. TODDs are revocable, therefore, the beneficiary can be removed during the owner's life, does not create legal or equitable interest in favor of the beneficiary, meaning the beneficiary cannot rent, sell or take out a mortgage on the property.
TODDs are revocable under the Texas Estates Code Section 114.052. Similar to a LBD , a TODD does not affect Medicaid eligibility or trigger Medicaid transfer penalty.
Reasons to use a Lady Bird Deed?
The purpose of a Lady Bird Deed to allow the owner to have control over the property, retain the property during his/her life, and give him/her the right to reside on the property and homestead rights while avoiding transfer penalties under the Medicaid Program, and to avoid Medicaid Estate Recovery Program (MERP).
In Texas, an applicant applying for Medicaid benefits is required to disclose the disposition of assets within the past 60 months (5 years). The difference in the value of assets versus the amount received is calculated as a “transfer penalty” against the applicant. For instance, if an owner gifted their house worth $500,000.00 to their child, they are penalized at $500,000.00 for not receiving any payment. This is not necessarily a penalty, rather, it delays the owner’s eligibility based on the amount received for Medicaid benefits.
Under a ladybird deed, the owner does not convey the property to the remainderman just yet and his/her interest has no value since the owner retains full control over the property, therefore the transferred penalty is not triggered.
Additionally, the MERP requires recovered costs paid to Medicaid from the estate of the person who receives support from Medicaid. Each applicant is required to sign a form acknowledging that assets from the estate is subject to MERP claims after he/she dies. The State of Texas must file a claim against the estate of deceased Medicaid recipients who received long-term healthcare benefits 55 or older. Since the Lady Bird Deed would not be a part of the decedent’s estate (estate of a person on his death), therefore not subject to MERPS claim.
How is Ladybird Deed similar from TODD?
As mentioned above, both are legal documents that supersede a will, are revocable, the owner has control and rights over the property, and the beneficiaries interest does not trigger a transfer penalty under Medicaid.
Additionally, both documents are low in initial costs, avoid probate, not subject to gift taxes, the owner maintains homestead rights until death, and is transferred upon death.
How is Lady Bird Deed different from TODD?
Below is a side-by-side comparison of how TODDs and Lady Bird Deeds differ:
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