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

Background of the Texas Transfer on Death Deed

As of September 1, 2015, Texas has joined numerous other states that allow owners of real property to transfer their properties to their heirs outside of the probate process.  This occurs by creating a Texas Transfer on Death Deed, also known as a “Ladybird Deed” or a “Enhanced Life Estate Deed.” The Transfer on Death Deed is now codified in Chapter 114, Subchapter A of the Texas Estates Code

The Transfer on Death deeds work similarly to beneficiary designations on insurance policies or bank accounts.  It essentially allows you to name a primary and secondary beneficiary who will inherit your property upon your death.  This type of deed is especially beneficial for Texans whose primary probate asset is their home.

Texas Transfer on Death Deed Requirements

To be effective, the Texas Transfer on Death Deed requires the document:

  • Contain the formalities and essential requirements of a recordable Texas deed:
    • The document must be in writing,
    • Must contain the legal description of the property,
    • Must include the name and address of the designated beneficiary or beneficiaries, and
    • Must be signed by the property owner (Grantor) in the presence of a Texas Notary Public.
  • The deed must indicate that the transfer of the Grantor’s interest in the property to the designated beneficiary or beneficiaries will not occur until after the Grantor’s death; and
  • The deed must be recorded in the deed records in the county clerk’s office of the county in which the real property is located before the Grantor’s death.
  • Additionally, the statute pertaining to the Texas Transfer on Death Deed specifically indicates that notice, delivery to, and/or acceptance of the deed by the designated beneficiary or beneficiaries is not required for the deed to become effective
  • Furthermore, an agent acting under a power of attorney for the Grantor cannot create a Transfer on Death deed under the Texas statute

Naming More Than One Beneficiary

In Texas, it is possible to name more than one beneficiary, but one should consider consulting with an estate planning attorney before doing so.  The Texas statute indicates that if you name more than one beneficiary on a Transfer on Death Deed, each named beneficiary will inherit the real property in undivided and equal shares with no right of survivorship.

This basically means that you cannot leave variable percentages to several beneficiaries.  If you name two beneficiaries, both will inherit a 50 percent share of the property.  If you name three beneficiaries, each will inherit a 33.33 percent share of the property, and if you name four beneficiaries, each will inherit a 25 percent share of the property.

As the statute pertaining to the Texas Transfer on Death Deed indicates that there is no right of survivorship, complications may occur if one of your designated beneficiaries dies before you, as the statute states that the deceased beneficiary’s share under the Transfer on Death Deed will not pass to the other surviving beneficiaries. As a result, it is important to consult with an estate planning attorney to draft or modify your Will to include provisions regarding what will happen to the property listed in the Transfer on Death Deed if the beneficiary or beneficiaries are not living at the time of your death.

Spouses Who Jointly Own Real Property

One common question regarding Transfer on Death Deeds (Enhanced Life Estate Deeds) is whether a Grantor should name their spouse as a primary beneficiary.

The answer is contingent upon whether you and your spouse own your property as joint tenants with rights of survivorship or tenants in common.

Generally in Texas, most couples own real property jointly as tenants in common.  This means that if one of the owners die, the other owner will need to go through the probate process or use a transfer device such as the Transfer on Death deed because the surviving spouse will not automatically inherit the property.

Transfer on Death Deeds and Ownership Rights

Unlike other real property conveyances and deeds, the Texas Transfer on Death Deed does not affect a property owner’s right to use, convey, or sell the property during their lifetime, according to Section 114.101 of the Texas Estates Code.

For instance, if a Grantor executes a Transfer on Death Deed, but subsequently sells the real property, the Transfer on Death Deed is automatically revoked.  

Revoking a Transfer on Death Deed

A Texas Transfer on Death Deed (Ladybird Deed) can be completely revoked during the life of the property owner (Grantor). This can be accomplished in one of the following ways:

  • The Grantor signs a new Transfer on Death Deed that expressly revokes the prior deed or specifies that the real property should pass to someone else in the new deed; or
  • The Grantor signs a separate document that expressly revokes the former Texas Transfer on Death deed.  It is important to note that a Grantor cannot simply revoke a Transfer on Death deed by drafting a contrary provision in a Will.

Additionally, either of the two above options must be:

  • Signed by the Grantor in the presence of a Texas Notary Public; and
  • Recorded before the Grantor’s death in the deed records in the county clerk’s office in the county in which the deed being revoked is recorded.  This should be the county in which the real property is located.

Another question that is commonly asked is what happens to a Texas Transfer on Death Deed if the Grantor names his/her spouse as beneficiary and then gets divorced.  If this situation occurs, a final divorce decree dissolving the marriage of the Grantor and former spouse can operate to revoke the Transfer on Death deed if the final divorce decree is recorded before the Grantor’s death in the deed records of the county clerk’s office in the county in which the deed to be revoked is located.

Acquiring Title to the Property After the Grantor’s Death

After the Grantor’s death, a certified copy of the Grantor’s death certificate should be filed in the county clerk’s office of the county in which the deed was recorded to serve as a link in the chain of title to indicate that the real property has been transferred to the beneficiary or beneficiaries.

It is important to note that title to the Grantor’s property is transferred subject to all mortgages, liens, judgments, and any other encumbrances.  Essentially, the beneficiary may not always be able to take title to the property free and clear.

Additionally, Chapter 114 of the Texas Estates Code indicates that the personal representative of the Grantor’s estate can enforce liability against real property transferred  by a Texas Transfer on Death Deed as if the property were part of the probate estate.

To enforce liability against real property in a Transfer on Death Deed, the personal representative of the estate must initiate a proceeding to enforce liability within 90 days after he/she receives a formal demand of payment from a creditor, heir, surviving spouse, representative of a minor child or incapacitated adult child, or any taxing authority.  If the personal representative does not initiate a proceeding, the aforementioned parties can initiate court proceeding themselves to enforce liability against the real property.

Essentially, title to the real property in a Transfer on Death deed may be unsettled until the claims period expires or a court proceeding takes place.  Often, filing a probate action in regard to the real property can significantly reduce the claims period against the real property and the rest of the Grantor’s estate.

Cost of a Texas Transfer on Death Deed or a Ladybird Deed

Our office charges a flat rate of $99 for a Transfer on Death Deed or a Ladybird Deed.

This includes drafting, subsequent consultation, instructions, and any needed revisions.  The client is responsible for filing costs at their respective county clerk’s office.

We serve the entire state of Texas for these types of deeds and can typically draft these documents within two business days after we receive the necessary information. The entire process can be completed online at your convenience.

Feel free to call us at (281) 973-7255 (9:00 am - 9:00 pm CST), visit our Contact Page, or click the button below to send us a message to set up a free initial consultation and discuss the option that is right for you and your loved ones.

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