Passing Your Texas Home On, With a Lady Bird Deed

A lady bird deed is simply an enhanced life estate deed. It’s popular with older adults who want to keep lifetime rights in a deed and then have it smoothly pass along to the next owner. It’s a unique way of conceptualizing co-ownership. It divides the value of real estate in time segments.

The enhanced life estate is a good option for some older adults in Texas and their relatives. But will it work for you?

The Basics: Q & A

Here are some key questions that come up about the lady bird deed in Texas:

How does a lady bird deed work in Texas?

Texas is one of the few states whose laws allow the use of a lady bird deed. So, how does it work? You keep rights over the lifetime value of your home. You become what’s called a life tenant. The next owner receives the remainder interest once you have died. Now, a lady bird deed is an enhanced life estate deed. This means the homeowner may revoke or change the lady bird deed at any time. With a standard life estate deed, you don’t have that flexibility. And the lady bird deed allows you to keep your homestead tax breaks and creditor protections during your life.

Other than revocability, what makes a lady bird deed “enhanced”?

Unlike the garden-variety life estate deed, you may transfer or borrow against your property, without the agreement of your beneficiary. You’re free to sell, rent, or borrow against your home. You’ll see that the deed form says the enhanced life estate preserves an unrestricted right to convey the property during the grantor’s life.

There’s no federal gift tax, and the lady bird deed protects you from legal challenges from your named beneficiary for doing with the home whatever you wish. Also, your beneficiaries’ creditors or court judgments will not attach to your home, because you didn’t deed the interest to the child while you’re living.

What happens to the deed when I pass on?

The deed transfers the remainder of the property’s value, after you are no longer present to need it, to your chosen beneficiary. After you pass on, your home won’t have to go through probate. Your home’s title will pass to the person you named on the lady bird deed. All it takes is filing a death certificate in the home’s county.

Is this a simple choice for homeowners in Texas?

It’s a simple way to pass the asset along. It’s usually less expensive and time-consuming than probate, and less complicated than setting up a trust. (But the calculation changes for those with significant property beyond the primary home. In some cases a trust may be more effective.)

I’ve heard it’s better for seniors who might need Medicaid?

If you go on Medicaid, the program may look to your estate to recover the benefits you were paid. But a lady bird deed bypasses probate. This feature can keep an older adult’s primary asset away from Medicaid. Because you have the right to cancel it, the enhanced deed is not vulnerable to the Medicaid estate recovery plan (MERP) the way a regular life estate is.

How does a lady bird deed impact property taxes?

Lady bird deeds don’t transfer the property until your death. This avoids triggering tax resets. But your home may be reassessed for property tax purposes after you pass on, when the property goes to your beneficiary.

Does the lady bird deed extend protections to my beneficiary?

Your legal rights and benefits are specific to you — not your beneficiary. Also note that the beneficiary named on the deed will be responsible for any existing liens. That said, by taking the home out of probate estate, the lady bird deed may help expedite probate for your other assets. Also, a lady bird deed allows for a stepped-up cost basis which may save the beneficiary from hefty capital gains taxes.

Is a lady bird deed better than a transfer on death (beneficiary) deed?

That’s a great question, as the Texas Estates Code now offers the transfer on death deed option. Both options transfer your home upon your death while avoiding probate. And both let you retain full ownership rights as long as you live. Read more on Deeds.com to get an idea of how transfer on death deeds are working out, and what to think about before deciding.

What controls — the lady bird deed, or contradictory language in my Last Will?

The lady bird deed conveys the home upon your death, even if you left other directions in your will. If you decide to write different instructions through your will, cancel the lady bird deed.

What language must be contained in the lady bird deed?

Basic contents of the lady bird deed include a legal description of the property (matching your existing deed), your name and the name of the beneficiary. The “enhanced” language is an affirmation that you as grantor reserve lifetime rights to sell the home.

Our deed forms are regularly updated and compliant with state and local laws and rules. Ask your attorney to review your document, then notarize and record your legal instrument following the county procedures. This article is not legal advice and should not be relied on as such. Consult your attorney for guidance in deciding how to construct an estate plan that works best for you and your chosen beneficiaries.