Ladybird Deed Texas

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Ladybird Deed Texas

It is common for clients to prefer to maintain complete control over their assets until they die, when those assets will pass to their delegated beneficiaries. By planning their estates well, these clients can avoid probate and the burden of having their families undergo the arduous probate process.

These clients should obtain an Enhanced Life Estate Deed in Texas or a Ladybird Deed Texas. The Lady Bird Deed is one of only five states that offer this option to clients, and it is an excellent option for clients who would like more control over their assets throughout their lifetimes.

 

Bit About Texas Lady Bird Deed

When the property’s current owner passes away, it can transfer the property to another person without going through probate. Regardless of whether you are alive, you will control your home and ensure the property seamlessly transfers to a named beneficiary should you pass away.

The Lady Bird Deed can be an effective estate planning tool to transfer assets without going through probate proceedings.

With Texas joining Florida, Michigan, Vermont, and West Virginia as the only states that offer this type of deed, only five states currently offer it. Also, in case you’re wondering why it has such a cute name, Lyndon B. Johnson used the deed to transfer property to Lady Bird Johnson, his wife.

A law professor used an example of the former president’s plan to show how these types of deeds worked, and the nickname stuck.

 

Lady Bird Deeds in Texas: How do they work?

In Texas, Lady Bird Deeds gives property owners the best of both worlds since they can transfer their ownership to someone else and keep the right to use and dispose of their property indefinitely, including selling it.

You can’t sell, mortgage, or change the grantee of a life estate without the permission of the current grantee. And as the grantor and holder of the life estate. You owe the property’s value to the person receiving it after your death. Revocation of the remainder interest of the grantee is also not possible, and revocation of the deed is not possible.

 

Benefits

The Lady Bird Deed, on the other hand, is known as an “enhanced” life estate since it provides you with the following benefits:

  • The property is sold, and the owner keeps the profits
  • The capital on the house to pay for the mortgage.
  • A deed of revocation or modification
  • In real estate, an owner can utilize the property, have it, and collect revenue from the property.

To be considered a Ladybird Deed, each of these rights must be explicitly stated on the title page of the deed. Texas Lady Bird Deeds are usually used to transfer homestead property without probate to a grantee when a grantor dies. They allow the grantor to keep the homestead until death.

A Texas enhanced life estate deed is also called a Texas ladybird deed. Ladybird deeds include enhanced life estate deeds as well. The owner has more control over the enhanced life estate than with a traditional deed. Although ladybird deeds are informal, they are commonly used by real estate professionals. They can also appear as ladybird deeds (with no spaces).

 

Can The Owner Still Sell The Property After A Texas Ladybird Deed Form Goes Into The Record?

The ladybird deed form offers some benefits that make it particularly appealing to Texas property owners. A life tenant can’t transfer complete property ownership without the remainder beneficiary’s consent under a traditional life estate deed. Texas Ladybird deeds overcome this limitation by reserving enhanced powers to the original owner.

As the life tenant of the property, the original owner retains the right to sell, gift, mortgage, or lease it without involving the rest of the beneficiaries. The owner can change their mind regarding the transfer at any time while alive.

 

The Basic Difference Between A Texas Ladybird Deed Form and A Texas Other Deed Form.

Ladybird deeds take their name after the probate avoidance features of the deed. Other deeds take their names after their warranties of title (or lack thereof). Generally, warranties of title are assurances that a deed will legally transfer ownership without any liens, mortgages, or other adverse third-party interests.

  • Deeds of warranty (which guarantee ownership in total);
  • Deeds with exceptional warranties;
  • Real estate transfers without warranty (without title insurance) and
  • Deeds of quitclaim (transferable without warranty regardless of the property’s interest in the transferor).

Unlike the Texas quitclaim deed and the Texas ladybird deed, they each provide a warranty of title independent of their probate avoidance provisions.

 

Is There A Difference Between A Ladybird Deed And A Life Estate Deed?

Unlike ladybird deeds, a traditional life estate deed forms the basis of an estate planning document. A traditional life estate deed allows a property’s ownership to fall into:

  • The life tenant owns the property for the rest of their life;
  • The remainder beneficiary owns the property after the life tenant passes away.

An owner’s power to sell, convey, or mortgage the real estate during the owner’s lifetime will not be limited by a traditional life estate deed. A life tenant under a traditional life estate deed must protect the remainder beneficiary’s rights by not impairing or erasing the remainder interest without the remainder beneficiary’s consent.

In other words, the remainder beneficiary must agree if the life tenant wishes to sell, transfer, or mortgage the property. Life tenants can sell or transfer their life estate, which is their right to possess the property until they die, but no more.

 

How Is A Texas Ladybird Deed Different From A Texas Transfer-On-Death Deed?

When the owner dies, the TOD deed names a beneficiary who will receive the property automatically. A Texas TOD deed works similarly to a ladybird deed in letting the owner keep the property for life and then transfer it outside of probate. A property owner’s rights to sell, transfer, or mortgage the property remain in Ladybird and TOD deeds.

 

How Is A Texas Ladybird Deed Different From A Texas Transfer-On-Death Deed?

 

In contrast to ladybird deeds, transfer-on-death deeds are expressly authorized by Texas statute. In 2015, the Texas Real Property Transfer on Death Act enacted a law that defined the rules, requirements, and legal effects of TOD deeds.

 

A better choice in some circumstances

TOD deeds have gained popularity in 2015 over ladybird deeds. Lady bird deeds are a better choice in some circumstances, however, due to a few crucial differences:

 

·         Warranty of title.

Tod deeds in Texas cannot provide warranties of title. A ladybird deed, however, can guarantee title to the new owner, avoid probate, and keep ownership for life.

 

·         Power of attorney.

Property owners can only sign Texas transfer-on-death deeds—not agents under a power of attorney. Agents with the necessary authority can sign ladybird deeds on their behalf. This can be very helpful if the property owner cannot sign the deed in person or create a TOD deed.

 

·         Additional life tenant.

Ownership is transferred to a co-owner for life by a Texas transfer-on-death deed when the current owner dies. A property owner can also use a Texas ladybird deed to add a co-owner for life. The owner may, for example, grant enhanced life estates to their spouse and children to take title upon the death of the last surviving life tenant and name the children as remainder beneficiaries.

 

The Advantages and Disadvantages of a Ladybird Deed

 

A ladybird deed has many advantages.

  • Avoid probate. With ladybird deeds, the property is removed from the owner’s estate, which means it will no longer be subject to probate after the owner passes away.
  • Maintain rights to use; you can sell or profit from the property during your lifetime. It is possible to change a ladybird deed at any time without the beneficiaries’ permission; they can only make decisions after your death.
  • Maintain Medicaid eligibility. When applying for Medicaid, Medicaid may still count the property you transfer to someone else as an asset, and you may not be eligible for full benefits if that property transfers. Medicaid does not consider ladybird deeds a transfer, so your eligibility won’t be in danger.
  • Prevent the use of property to repay Medicaid benefits. According to federal law, states can recover Medicaid long-term care costs after a person’s death by claiming the assets of that person. You don’t have to worry about the Medicaid estate recovery plan or MERP in states that offer ladybird deeds.
  • Avoid federal gift tax. You may need to file a gift tax return with the IRS (and may also have to pay a gift tax) if you give a gift to an adult child. Using ladybird deeds, the property does not transfer until your death, so you won’t have to worry about gift taxes.
  • Avoid property taxes. Depending on the state, property tax assessors can only increase a property’s taxable value to a certain extent using the ladybird deed. You can maintain this tax benefit by setting up a ladybird deed that transfers property upon death. But the cap may reset if the property transfers (like through a sale).

 

Ladybird deeds have disadvantages.

  • Available in only five states. Only five states currently use ladybird deeds: Florida, Texas, Michigan, Vermont, and West Virginia. Insurance companies in the other 45 states won’t insure property that passes through a ladybird deed. If you live elsewhere, you must use a different estate planning strategy.
  • Beneficiaries may have higher property taxes. If you leave your property to a beneficiary via a ladybird deed, the beneficiary may face higher property taxes once they inherit it. Certain trusts may help protect your beneficiary from these higher taxes.

 

Medicaid and the Lady Bird Deed in Texas

It is common for clients to worry about how their estate planning may affect their ability to get Medicaid. The most critical concern of many clients is that Medicaid will drain the value of their assets to pay for their care. We can reduce these fears and uncertainties by using a ladybird deed.

Upon applying for Medicaid, the administering office will first evaluate any property transfers that may have occurred within the past five years. An asset transfer in this period is subject to a penalty period. This is known as the “look-back” window. (This Medicaid asset protection in Texas post also covers probate in more detail.) This will result in a penalty period where clients may not be eligible for benefits.

Because the property covered by a ladybird deed is not considered a transfer in Medicaid terms. Such transfers need not be disclosed to Medicaid or used to determine a client’s Medicaid eligibility.

 

It can benefit a client’s family dealing with Medicaid recovery.

Ladybird deeds can benefit a client’s family dealing with Medicaid recovery. In Medicaid recovery, the state makes claims against your estate and assets to repay your care’s cost. The definition of estate assets varies between states. However, in Texas, they are defined as probate estates.

A ladybird deed will avoid probate, so there will be no property in the probate estate to repay, so your family won’t have to pay any costs in the first place.

 

What Is The Process For Creating A Texas Ladybird Deed?

To create a ladybird deed, you must use a form that includes language creating an enhanced life estate that meets all the Texas deed requirements.

It is crucial to use a ladybird deed form customarily used in Texas real estate transactions because the Texas ladybird deed form does not rely on a statutory form. For example, if you created a ladybird deed in Florida or Michigan, it may be unrecordable in Texas because real estate laws differ between states.

 

Bottom Line

It is common to use ladybird deeds in Texas, and Texas title insurance companies recognize them, but no specific law authorizes them. Texas attorneys have developed the ladybird deed form to satisfy the requirements of Texas title insurers and Texas laws that govern all deeds. A ladybird deed must have proper formatting, an accurate legal description of the property, and a notarized signature, just as other Texas deeds must do.

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