Table of Contents

What Is The Lady Bird Deed

The Purpose of the Lady Bird Deed

The Advantages of a Lady Bird Deed

A Lady Bird Deed is a special deed that can transfer property from one person to another after the current owner's death, thereby skipping the probate process. The deed gives you control over your home as long as you are alive and ensures that if anything happens to you, the property seamlessly transitions to a named beneficiary.

The Lady Bird Deed can be used as an effective estate planning tool to transfer assets without going through probate proceedings. As of now, only five states offer this type of deed option, with Texas joining Florida, Michigan, Vermont, and West Virginia.

Also, in case you’re wondering what’s up with the cute name: The deed gets its unique moniker from when President Lyndon B. Johnson used it to transfer property to his wife, known as Lady Bird Johnson. The former President’s plan was used by a law professor as an example for illustrating how these types of deeds worked, and the nickname stuck.

The Lady Bird Deed, also known as the enhanced life estate deed, is designed to facilitate the transfer of assets, particularly real estate, while still allowing the original owner to maintain control of the asset during their lifetime. With this deed, you can transfer property to another without the hassle of going through probate or any other court proceedings required by law.

The deed allows for an easy and convenient way to distribute assets among family members after someone's death with no added fees or taxes taken out in advance at the time of sale purchase price — which is why it is often referred to as "asset protection."

The Lady Bird Deed also allows the owner of the asset to mortgage, lease, rent, or sell the property without the consent of the beneficiary. In simple terms: As long as the property’s original owner is still alive, the beneficiary has no right to the property, or to make decisions concerning the property. This stands in opposition to so-called traditional life estate deeds, which revokes a lot of control that the original owner has over their property.

The Texas Lady Bird Deed has numerous benefits for many Texas property owners that include:

Reduces risk and helps you avoid capital gains tax

The Texas Lady Bird Deed saves you from paying capital gains tax on your home. Capital gains are a type of gain realized when an asset, such as property or stocks, increases in value over time and then decreases again at some point later. Your heirs will also not have to pay a gift tax.

Another benefit to the Lady Bird Deed is that it helps future heirs avoid the two-year “claw-back period” which exists for Transfer-on-Death deeds. Basically, if the deceased had creditors upon their death and transferred their real estate to a beneficiary, the creditor to the estate has the right to “claw back” the property and consider it part of the estate if the estate is not large enough to cover its debts. This is not possible with Lady Bird Deeds.

The Lady Bird Deed is a cost-effective estate planning tool

You won't be charged a filing fee or any other cost when you use the Texas Lady Bird Deed to transfer property. You can plan for the future — the deed documents all your plans — including what property is going into, which trusts are set up, and who inherits each item on your list of beneficiaries.

Homestead Exemption

A Texas homestead exemption allows you to exempt your total assets value from taxation. The deed grants you this exemption for all real property not in commerce or occupied by another business, such as a warehouse or manufacturing facility. They include personal residences, specific agricultural land used primarily for farming purposes, and commercial nurseries that propagate trees.

Avoidance of probate

The Texas Lady Bird Deed is a document that helps eliminate the loss of time and money associated with probate. It eliminates unnecessary expenses while transferring property from one owner to another.

Besides, the process offers speedier transfer due to less paperwork involved. It avoids probate courts; Ownership reverts sooner than traditional methods — resulting in more tax deductions since owners don't wait an extended period before selling properties.

Preserves your eligibility for Medicaid and protects assets from estate recovery programs

Many families choose to arrange for the transfer of property via a Lady Bird Deed because it allows the owner of the estate to remain eligible for Medicaid benefits.

Medicaid usually has an “estate recovery” program that kicks in after a Medicaid recipient dies, which basically means that the state becomes a creditor to the deceased’s estate and can claim repayments for the care the deceased received.

A normal deed transfer would fall under this “estate recovery” program and could be in danger of being repurposed if the estate doesn’t have enough funds to cover the debt, but a property that was transferred via a Lady Bird Deed evades this.

This also goes for any property transfers done before applying for Medicaid benefits in order to become eligible.

Have questions about how to set up a Lady Bird Deed and how it can help you and your family plan for the future? Get in touch for a free consultation with ClearEstate today, and find out how we can help.