My clients often ask about using a “Lady Bird Deed” or “Transfer on Death Deed” and are surprised to find out that these are two separate deeds. While the deeds may seem similar, there are several distinctions that should be considered before you sign one.
Enhanced Life Estate Deed, a/k/a Lady Bird Deed. An Enhanced Life Estate Deed allows you to keep a life estate (the right to live in your residence for the rest of your life or until you leave) in your residence, and immediately gift the remainder (interest in your residence after you die) to your beneficiary.
Pros: This deed avoids probate on your residence, it’s revocable, your beneficiary receives a step-up in cost basis, the deed can be recorded after your death, the deed can be signed by an Agent under Durable Power of Attorney, and you retain your right to receive government benefits, such as Medicaid.
Cons: Title companies may require both you and your beneficiaries to sign the deed of sale if you sell your residence before death, the deed cannot indicate what happens if your beneficiary predeceases you, if you have a mortgage, the deed may trigger a “due on sale” clause, and this deed should not be used with a reverse mortgage. Finally, Enhanced Life Estate Deeds are not codified in Texas law, so our legislature might not uphold their validity in the future.
Transfer on Death Deed. In 2015, the Texas legislature signed the Transfer on Death Deed into law. A Transfer on Death Deed allows for you to make a gift of your remainder interest in your property, effective only upon your death.
Pros: This deed avoids probate on your residence, it’s revocable, your beneficiary receives a step-up in cost basis, and you retain your right to receive government benefits. Unlike the Enhanced Life Estate Deed, the Transfer on Death Deed is supported by Texas laws. You also have more flexibility in naming alternate beneficiaries if a beneficiary predeceases you.
Cons: A Transfer on Death Deed conveys no warranties, which means it is like a quitclaim deed. If the deed is not recorded before your death, then it is not effective, and it cannot be signed by an Agent under Durable Power of Attorney.
While an Enhanced Life Estate Deed and Transfer on Death Deed both avoid probate, they may have vastly different impacts. You should speak with an experienced estate planning or real estate attorney if you are considering using one of the above deeds, or if you are interested in probate avoidance using other methods, such as a Revocable Living Trust.
Julia “Jules” Pullin is an attorney at The Dean Law Firm, PLLC, a boutique law firm practicing in estate planning, probate, guardianships, and elder law. The Dean Law Firm, PLLC, has been named in the Top Five Top Estate Planning Firms by the Houston Chronicle, Reader’s Choice by Living Magazine, “Texas’ Most Outstanding Estate Planning Boutique” by Acquisition International and “Best Law Firm of the Year” by Lawyer International Legal 100.