Texas Transfer on Death Deeds (Ladybird Deeds)

Why are Transfer on Death Deeds or Ladybird Deeds generally used for Estate Planning in Texas?

In short, these deeds allow Texans to pass real estate upon their death without going through probate, in a similar manner to a paid on death account at a bank.  While there are differences between these two deeds, both deeds work to avoid estate recovery, or the right of the  government to make a claim to the extent that Medicaid benefits were advanced before a person’s death.

Often, Medicaid benefits (nursing home costs and medication costs) are advanced before a person’s death and the government has the ability to make a claim against the person’s estate (typically, a person’s principal residence), if it passes by either probate or intestacy (dying without a will).  As both the Transfer on Death Deed and the Ladybird Deed pass real estate outside of probate, these deeds can be used to transfer property to your intended recipient, while successfully avoiding a claim by the government to recoup any Medicaid benefits that may have been advanced.  Furthermore, since no value is actually transferred at the time of signing one of these deeds, there is no disqualification for the homeowner from receiving Medicaid, if needed.

Differences Between a Ladybird Deed and a Transfer on Death Deed

While both of these deeds have similar goals, such as avoiding real estate recovery, several key differences are listed below that may help you better prepare your future estate planning needs:

  • Ladybird Deed
    • Allows the grantor (home owner) to transfer any remaining interest on real estate, generally with warranties
    • Allows the grantor to reside in the property during their lifetime
    • Retains the right for the grantor to sell, lease, mortgage, and/or keep all proceeds of the property
    • Allows the grantor to deed the property back, or execute a new deed
    • Does not result in a transfer penalty for Medicaid purposes
    • Does not trigger a due-on-sale clause, if the grantor’s property is secured by a mortgage
    • A Ladybird Deed can be signed by an agent acting as a Durable Power of Attorney.  In situations where the grantor lacks mental capacity, but a family member has Power of Attorney, a Ladybird Deed is generally a better instrument to use
    • A Ladybird Deed may be a better alternative for grantors with a title insurance policy to prevent potential objections to title because a Ladybird Deed generally conveys warranties and due to the lack of case law regarding Transfer on Death Deeds
  • Transfer on Death Deed
    • Allows the grantor to transfer any remaining interest on real estate (without warranties)
    • Allows the grantor to reside in the property during their lifetime
    • Can be revoked by all grantors, or by executing a new deed
    • Does not result in a transfer penalty for Medicaid purposes
    • Retains all property tax exemptions  and tax advantages for the grantor
    • Does not trigger a due-on-sale clause, if the grantor’s property is secured by a mortgage
    • Indicates that the beneficiary must survive the grantor by 120 hours, unlike a Ladybird Deed
    • MAY NOT be executed by an agent under a Power of Attorney — simply put, the grantor must have mental capacity to execute a Transfer on Death Deed
    • Subject to claims against the grantor’s estate for two years after the grantor’s death
    • Additionally, as case law is limited regarding Transfer on Death Deeds, questions remain as to whether title companies can successfully argue that the grantee is not. entitled to protection under the title policy, since the new Texas Transfer on Death Deed may not meet a specific title company’s definition of “insured” under the policy.  Thus, if the grantor does not have a title policy, then the Transfer on Death Deed may be best