We recently discussed Transfer on Death Deeds in Texas.  If you missed that blog post, click here.

Today, we will turn our attention to enhanced life estate deeds, also known as “Lady Bird Deeds.”  Unlike Transfer on Death Deeds, Lady Bird Deeds (LBD) are not a statutory creation, meaning there are no set statutory guidelines regarding these documents. Instead, it is Texas case law that governs the interpretation of LBDs, and there are actually very few cases on this topic.

What is an LBD?  An LBD is a deed that transfers a person’s (the “grantor”) interest to another (the “remainderman”) but reserves a life estate in favor of the grantor. Unlike a traditional life estate deed, an LBD’s retained life estate interest includes not only the right to occupy and use the property, but also includes the ability to sell, convey, lease, or mortgage the property without the consent of the remaindermen. The grantor has no obligation to obtain permission of the remaindermen to take any of these actions and does not have an obligation to account to them for any income the grantor receives. This is the key distinction between a life estate deed and an LBD.

See, Lashmet discusses Transfer on Death Deeds

Who can execute an LBD?  Anyone with contractual capacity may execute an LBD. Unlike a transfer on death deed, an agent acting under a power of attorney may execute an LBD.  This is a key distinction between LBDs and transfer on death deeds.

What may be transferred by an LBD?  Any real property in Texas can be transferred by an LBD.

What must be included in an LBD?  An LBD is simply a deed that includes the designation of remaindermen and reservation of the life estate and enhanced rights to the grantor. It may be in the form of a general warranty deed, special warranty deed, or a deed with no warranty. As with any deed, the property description that must be included in the deed should match the deed originally granting the property to the transferor. The property description from the Appraisal District, for example, may be insufficient or inadequate to satisfy the necessary requirements.

What must be done with an LBD?  Like any other deed, an LBD must be executed by the grantor and recorded in the deed records in the county where the property is located.

Can an LBD be revoked?  Yes. The LBD grantor has the right to revoke the LBD either by filing a revocation document or by filing a subsequent conflicting LBD.  Additionally, the LBD allows the grantor to retain all control, including the right to sell, gift or otherwise transfer the property. Thus, the grantor could sell, gift, or transfer the property during his or her lifetime, which would result in cancellation of the LBD.

What other rights are affected by an LBD?

What action must be taken by the remainderman at the grantor’s death?  The LBD allows the property to pass outside the probate process.  At the death of the grantor, the title of the property vests in the specified remainderman without going through the probate process.  Generally, a remainderman will file an affidavit or some other document notifying that the grantor has passed away and that the ownership has fully vested in the remainderman. 

What are the pros of LBDs?  The key benefit of an LBD and purpose for which they were created was to assist with Medicaid planning. As noted above, the execution and filing of an LBD is not considered a transfer for Medicaid purposes. This means the Medicaid transfer penalty is not triggered. Additionally, because property passing through LBD is not considered part of the decedent’s probate estate, it is not subject to Medicaid Estate Recovery, at least under current law. Additionally, the use of an LBD will allow the property to pass outside the probate process.

What are the cons of LBDs?  One of the biggest downsides to an LBD is simply the lack of Texas law regarding this type of deed. Unlike transfer on death deeds, there is no statute governing the use of LBDs and very little case law on them as well. There is no standard form or statutory guidance of using an LBD. Additionally, because there is no statutory authorization for these types of deeds, a court decision could greatly change the legal status of LBDs at any time. Additionally, as noted above, an LBD could potentially trigger a due-on-sale/transfer clause in a mortgage, which could certainly cause unintended consequences for the grantor.

Source: is Texas Agriculture Law Blog, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.