While the Texas probate process is fairly simple (you can read my article about the process here), as an estate planning attorney, I often have clients who want to know what they can do to help their loved ones avoid probate. For personal property (such as bank accounts) outside of trusts, proper and careful classifications, as well as beneficiary designations, can help to legally transfer that type of property without going through probate. For real or fixed property, either a Lady Bird deed (“LBD”) or Transfer on Death Deed (“TODD”) can also transfer the property without probate. Both deeds retain a life estate for the grantor and transfer the property to the grantee once the grantor dies. The LBD and TODD are similar, but they have their differences, which this article will explore.
First, how are they similar?
One of the most important similarities between Lady Bird Deeds and Transfer on Death Deeds is that both can be revoked by the grantor during his or her lifetime. Both types of deeds allow the grantor to live on the property, sell it, take loans against it, keep his or her homestead rights and ad valorem exemptions, and enjoy it as if there was no LBD or TODD. Additionally, both are relatively low-cost, and neither is subject to the Medicaid Estate Recovery Plan (“MERP”) if the grantor qualifies for Medicaid during his or her lifetime. Likewise, neither is subject to the grantee’s creditors during the grantor’s lifetime, and neither qualifies as a taxable event for gift tax purposes.
How are they different?
The two deeds have considerable differences, which are important to review with an estate planning attorney before making a decision.
The TODD has a statutory form, but the LBD does not. Whether or not that is a good thing changes with the situation. Some title companies prefer the TODD because of its statutory nature, but some title companies have more requirements for the TODD than for the LBD. Sometimes, it is nice to have the certainty of a form, while other situations call for the flexibility of artful drafting. Also, the TODD also allows the grantor to designate contingent beneficiaries, and the LBD does not.
Unlike the TODD, the LBD extends its warranties to the grantee and may be executed by an agent under a power of attorney. Despite that they both pass title to real property outside of probate, if probate is required for other reasons, the executor or administrator can reach the property that was transferred by a TODD to pay creditors, but cannot reach the property that was transferred by an LBD. And while both deeds are fully revocable and controlled by the grantor during his or her lifetime, the grantor of an LBD may need to get the approval of the grantee to revoke the deed or sell the property, but the grantor of the TODD does not.
Which deed is right for me?
Determining the best deed for your property really depends on your situation and what you hope to accomplish. Below, find part of the working chart that guides me during client consultations. But note: this is ever-changing. Your best course of action is to seek legal counsel from an estate planning attorney. They can help you choose the right deed, as well as ensure its properly drafted to accomplish your goals.
*even despite attempted language to the contrary
*but may require grantee approval
|Subject to MERP||N||N
*transfer is complete upon death so it doesn’t become part of probate estate
|Subject to creditor of beneficiary during grantor’s life||N||N|
|Warranty for grantee||N||Yes
*if written in deed
|May be executed by agent under power of attorney (POA)||N||Y|
|May be revoked, conveyed, or encumbered by agent under POA
*arguments to be made under certain POAs with certain hot powers
|Taxable event for gift taxes||N||N|
|Basis adjustment at death of grantor||Y||Y|
|Grantor retains control during life||Y||Y|
|Grantor owes duties to grantee to avoid waste||N||N|
|Grantor keeps homestead rights||Y||Y|
|Grantor keeps ad valorem exemptions||Y||Y|
|Executor/administrator can reach/sell, if necessary to pay estate creditors||Y||N|
|Effective without notice and acceptance by grantee during grantor’s life||Y||N|
|Can be left to trust, estate, corporation, etc.||Y||Y|