Lady Bird Deeds: Avoiding Probate Court
The world of probate law can be an intimidating place. The law is lengthy and complex. The process is slow under good circumstances. And if/when fighting breaks out over the estate, the litigation can get expensive. The best path is typically to attempt to skip the probate process entirely or at least minimize it by using the right set of tools. Often, a little-known legal document called a “Lady Bird Deed” can be the best tool for that job.
A Lady Bird Deed (or “Enhanced Life Estate Deed,” as it is known in formal settings) is a special type of deed that helps avoid the probate process when transferring land. It is a relatively obscure legal document that is not recognized by many States. However, Texas does recognize Lady Bird Deeds as valid.
A Lady Bird Deed works by turning the land it covers into a non-probate asset. The original landowner can give a Lady Bird Deed to their “heir,” yet remain in complete control of the land during their lifetime. Even after handing over the deed, the original owner can continue to live on the land, make changes to the property and even create a new Lady Bird Deed gifting the land to a new owner. Complete title and control over the land does not switch over to the new owner until the original owner passes away. Once that happens, the transfer is automatic, so the land technically never enters the deceased’s estate. Thus, land already covered by a Lady Bird Deed cannot be touched by a probate court.
A Lady Bird Deed might also provide protection against the Medicaid Estate Recovery Program (MERP). MERP allows a state to file a claim against a deceased’s estate to recover costs associated with their care. Land conveyed via Lady Bird deed doesn’t enter the deceased’s estate, so the Health and Human Services Commission’s current policy does not allow MERP to even attempt to go after it in Texas. However, policies are always subject to change and if MERP changes its position in the future, consultation with an attorney or some other subject matter expert is advisable.
While certainly a useful tool, the Lady Bird Deed does have drawbacks as well. First, many title companies are hesitant to ensure land conveyed by Lady Bird Deeds, since they are often unfamiliar with such deeds themselves. Lady Bird Deeds are considered “special warranty deeds,” so it is best to check with your title company to see their policy on special warranty deeds in general. Next, if the original intended beneficiary passes away before the original landowner, the Lady Bird Deed becomes useless. The dead cannot inherit property from the living, so the land will fall back into the original estate and once again be subject to probate. Finally, depending on how the Lady Bird Deed is written, it may trigger the “due on sale” clauses often found in mortgages. This could potentially force the new owner to pay the existing mortgage immediately. To avoid this, check with an expert in mortgages before conveying any type of special warranty deed.
A transfer upon death deed works similarly to a Lady Bird Deed but still contains its own set of drawbacks. A transfer upon death deed is created using statutory language from the Texas Estates Code, making it far more formal than a Lady Bird Deed which must be entirely custom made. This added certainty is also why transfer upon death deeds are more widely accepted by title companies and courts outside of Texas. However, unlike land conveyed by a Lady Bird Deed, land conveyed by a transfer upon death deed can still be touched by an estate creditor for up to two years after the original owner passes away.
Ultimately, there is no one-size-fits-all solution to creating a perfect estate and there is no amount of planning that will completely prepare loved ones for what lies ahead. That said, even an ounce of preparation can make a world of difference. With the right combination of tools, you can make your own passing a bit easier for those you leave behind.
This article is intended to provide general legal knowledge, but it is no substitute for speaking with an actual lawyer. To speak with an attorney in the Fort Bliss Legal Assistance Office on this or any other topic, please schedule an appointment by emailing usarmy.bliss.hqda-otjag.mesg.bliss-legal-assistance-office@army.mil at any time or by calling (915) 568-7141 during business hours.
Capt. David Mathew, Fort Bliss Legal Assistance Office