More people are choosing to age at home rather than enter assisted living facilities. By staying at home, seniors can maintain relationships with family and friends, continue to use the health care team of their choice, and save a little money. Most importantly, aging at home allows seniors to maintain their dignity. But how does this decision effect estate planning? There are different options available. One option to consider in Texas is the Lady Bird deed.
The Lady Bird deed, or enhanced life estate deed, allows homeowners to choose who will receive their property upon their death while they maintain ownership rights of that property while they are still living. This means they may not only live in the home, but they maintain the right to sell or lease the home, take out a new loan against it, or make any major changes to it without getting the beneficiary's permission. A standard life estate deed, however, gives the beneficiary some control over the property even while the owner, or grantor, is still living. Beneficiaries must approve all decisions made concerning the property. The grantor can't sell the property without their permission, and if a sale does take place, the beneficiary must receive a portion of the proceeds. So, in a standard life estate deed, the grantor retains only partial ownership rights, while an enhanced life estate deed, or Lady Bird deed, gives complete control until the time of death.
The Lady Bird deed provides other benefits, including:
- Control of the home – The owner maintains full authority over the property, including the right to revoke the deed at any time. They may downsize, refinance, or even move without asking permission from the beneficiary.
- Avoid probate – After the homeowner dies, the family records the death certificate with the county clerk, who will file the paperwork and provide the family with stamped copies for their records. The beneficiary does not have to go through probate to take ownership, saving time and money.
- Avoid Medicaid Requirements – The Texas Medicaid Estate Recovery Program (MERP) may claim assets of the deceased. Lady Bird deeds keep the house out of the estate definition used by MERP. Since the transfer happens immediately upon the homeowner’s death, no claim attached to the house can continue to the family.
- Possible tax benefits – In a Lady Bird deed, the deed does not count as a gift during life, allowing the beneficiary to avoid paying federal gift tax rules.
Possible drawbacks include:
- Limited credit protection – If the owner leaves considerable debt, a judgment lien against the house could still be upheld, even after the owner's death. The beneficiary could be left responsible for those debts.
- Limited state recognition complication – The Lady Bird deed is only recognized by five states. Estate attorneys would have to know how to work around this when dealing with those states.
Homeowners wanting to use the Lady Bird deed must complete a Texas Lady Bird deed form. While forms may be downloaded, it is easy to download the wrong one. Using an estate planning attorney is highly recommended to ensure homeowners get the right form. Another reason to use an estate planning attorney is that most forms require a description of the property. This means more than just the address. It requires more specific details, often sketches or diagrams. Estate planning attorneys are familiar with each different county's requirements and will help you avoid problems that might slow down your application.
Once the form is filled out, homeowners should sign the form in front of a notary and it is recorded in the county deed records.
A Lady Bird deed can be a valid alternative for senior homeowners wishing to stay in their own homes as they live out their golden years. It can provide peace of mind of knowing they will be able to enjoy that time in control of their present and their future with dignity.