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I hope you enjoy this brief video about what a Ladybird Deed is and what it does.
The best way to explain the ladybird deed is probably to start with something called the life estate deed. In a standard deed, Person A has full ownership of real property. By real property, I mean land, a house, buildings, etc., as opposed to real property, which in legal jargon is your stuff.
So, in a life estate deed, Person A has full ownership of real property and transfers title of said property to Person B, but keeps for themselves the right to live in that property until they either die or decide they don’t want to live there anymore, and Person B, although Person B has title to that property cannot use the property until Person A dies, or decides they’re done with it; that’s the standard life estate deed.
Now, what the ladybird deed does is that it starts with the basic life estate deed concept and expands on it. So, instead of simply transferring title from the property from Person A to Person B, and Person A gets the right to live there for as long as they like. And, once that’s done in a standard life estate deed, it’s done, there’s no undoing it.
In the ladybird deed, in addition to keeping the right to live on the property, Person A can also revoke the ladybird deed. By revoking it at any time, they can change the beneficiary that is Person B, the person who will be getting the property. Person A can change the beneficiary, they can decide to sell the property, they can rent it out, they can reverse mortgage it, they can put a second mortgage on it, they can do whatever they want with the property while they are still alive.
That really is a great estate planning tool for someone who wants to make sure that a certain person would take a piece of property when they die, but still wants to retain control over that property while they live and so, because of all of those extra benefits that come along with the ladybird deed, you might also sometimes hear it called the Enhanced Life Estate Deed, or it’s been called a Life Estate Deed with Power of Sale because that’s one of the major components of the ladybird deed is that the person granting the property to somebody else retains the right to sell it if they want to.
Some of the major benefits of the ladybird deed is that it avoids probate. Now, what that means is that probate is how most assets are transferred from a person who dies to the people they leave it to in a will, such as family members. Probate is generally the process for transferring that property. Now, the ladybird deed, as with a general life estate deed doesn’t pass through probate because essentially title to that property has already transferred, even though the original owner retains the right to live in it. Their title has effectively already transferred. So, when the original owner dies, there’s no need to have that particular piece of property go through probate because the title is already held by Person B, the other person who will be getting the property. So, that is a way to transfer property outside the scope of what probate does and that’s one of the most popular reasons that people use ladybird deeds.
Another great benefit to the ladybird deed is Medicaid protection, if you use the ladybird deed to transfer a primary residence to someone else. This does not defeat Medicaid eligibility because it does not count as a transfer of property for the five-year look-back period for Medicaid purposes because the owner retains the right to sell it and retains the right to live in it. So, it doesn’t count as a transfer for Medicaid purposes and does not defeat Medicaid eligibility, and that is what a lot of people think is the better part of using a ladybird deed.
As we’ve previously discussed, the ladybird deed transfers property outside of probate, so Medicaid cannot come back and try to take that property as part of the Medicaid Asset Recovery Program, or MERP as it’s called in Texas. Texas has established its rules as to how Medicaid applies in the state of Texas, and only probate assets are available to repay any Medicaid debt, and because a property transferred through a ladybird deed is not a probate asset by the definitions we use here in Texas, it’s not available for Medicaid to take to repay any Medicaid debt.
And lastly, because as we’ve discussed, the person who creates a ladybird deed retains the right to live on the property, the property owner also retains the right to a homestead exemption on that property.
There are some drawbacks to the ladybird deed. First, it is not recognized in most states in the United States. Texas, we use it here in Texas quite a bit. I know Florida also has their version of it and there are a few other states, but this could become a problem if you try to get a title company that might not be based here in Texas to provide title insurance on it. Some title companies are reluctant to issue title insurance to property transferred through a ladybird deed, particularly if they are based in another state and they are not familiar with the concept of the ladybird deed. Second, it might be difficult or even impossible to either refinance or reverse mortgage a property that has been transferred by a ladybird deed.
Finally, although the laws the way they are now create a fantastic way to help avoid Medicaid claim against an estate, either the federal legislature or our Texas state legislature could at any time they go into session change the rules so that the ladybird deed no longer works the way it currently does. So, just because it works now, it may not always though.
One last thing, a bit of trivia before we go: why is the ladybird deed called the ladybird deed. Well, I’ve heard two different theories on that, the first is that President Lyndon B. Johnson was one of the first users of the ladybird deed to transfer property to his wife, Lady Bird Johnson. And, the other theory is that it was actually a Florida lawyer who first created the ladybird deed sometime in the 1980s, and to explain the concept, he simply used the names of President Johnson and his family to explain how it worked, and the name just kind of stuck that way. I don’t know which one of those is right; personally, I like the idea of President Johnson actually using the deed himself. I prefer that theory, but there you have it. I hope you enjoyed our video. If you want to know more, you can find our contact information below. Thank you for watching.