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Roberts & Roberts, LLP

2501 E. Elms Rd., Ste. A, Killeen, TX 76542-3019 • (254) 526-7541 (phone) • (254) 526-5656 (fax) • www.robertslegalfirm.com

Transfer on Death Deeds and Lady Bird Deeds in Texas

Many of our clients have heard of Transfer on Death Deeds ("TODDs") and Lady Bird Deeds ("LBDs"), and may have been told that they absolutely must sign one or the other, but most do not have only a cursory understanding of the differences between the two, and when one or the other might be appropriate.

Background

A LBD is the common name for what is technically known in Texas as an Enhanced life Estate Deed. Contrary to popular belief, they have nothing to do with President Lyndon Johnson's spouse, but rather were designed by a Florida attorney for Medicaid planning purposes. There is no statutory basis for LBDs, but their use is widely supported by case law and tradition. TODDs, on the other hand, having been used in many other states for years, came to Texas in 2015 when the Legislature authorized them by an amendment to the Texas Estates Code.

Similarities

At first glance, TODDs and LBDs seem very similar. They are both special kinds of deeds that you sign and record during your lifetime to transfer your land to someone else (your "Grantee") after you die. Depending on the circumstances they can each offer certain benefits, such as:

  • Land transferred by a TODD or a LBD is not part of your estate when you die, and thus passes to your Grantee without going through probate.
  • TODDs and LBDs are revocable, so if you later change your mind you can make changes (as long as you still have the mental and legal capacity to do so.)
  • TODDs and LBDs can both be used to avoid the Medicaid Estate Recovery Program (MERP), which might otherwise allow the state to make a claim against your land to recover the cost of certain long-term-care services provided by Medicaid.
  • TODDs and LBDs may allow you to transfer your land without gift tax liability, and may provide the Grantee with a step-up in basis (which may in turn reduce the Grantee's capital gains tax liability if they later sell the property.)
  • If the land in question is your home, TODDs and LBDs both allow you to maintain your homestead rights, as well as any property tax exemptions or discounts that you may be entitled to claim.

Differences

Despite their similarities, there are some significant (and sometimes subtle) differences between TODDs and LBDs as well, including:

  • Generally speaking, a TODD has no legal effect until you die. However, a LBD makes an immediate conveyance to the Grantee, subject to a "life estate" that you retain. Because a TODD conveys nothing to the Grantee until you die, your property cannot be exposed to the claims of the Grantee's creditors during your lifetime. However, because a Grantee under a LBD acquires a present "remainder interest" it is possible that the property may become subject to their creditor claims while you are still alive.
  • A TODD does not contain a warranty of title, but a LBD typically does. This may affect the Grantee's rights in the event a title defect is later discovered.
  • Your agent cannot use a Power of Attorney to sign a TODD on your behalf, but if drafted properly your agent may be able to use a Power of Attorney to sign a LBD for you.
  • In a TODD you can designate alternate beneficiaries in case, for example, your primary beneficiary predeceases you. LBDs do not offer this flexibility.
  • LBDs allow multiple Grantees to receive the property in unequal percentages, but under a TODD multiple Grantees must take in equal shares relative to each other.
  • Property passing under a TODD may still be subject to claims via your estate, including creditor claims, family allowances, expenses of administration, and estate taxes, but absent fraud or other unusual circumstances land transferred by a LBD is not.
  • Because property passing under a TODD may still be subject to estate claims, some title insurance companies will not insure a transaction involving that land for two years or more after your death, which can make it difficult for your Grantee to borrow money against the property or sell it. LBDs rarely have this problem.

Do I Still Need a Will?

It is important to understand that TODDs and LBDs only transfer land. If you own other assets (such as bank accounts, vehicles, boats, trailers, investments like stocks or bonds, and so forth) those items will still be part of your estate when you die, so some sort of probate or administration may be necessary to clear title to those items. Additionally, your estate may have claims that you are not even aware of at this time. For example, your estate might later have a malpractice claim against your doctor, or a negligence claim against a drunk driver who injured you, or you might inherit something from a remote family member who dies without a Will. Accordingly, we strongly recommend that all adults have at least a basic Will in place, even if they think they do not own any significant assets, because that will make administering your estate so much easier and less expensive. Of course, if there is nothing of consequence left in your estate except for a home that passes under a LBD or a TODD, it may not be necessary to probate the Will, but at least your family will have that "safety net" in place if they need it.

So Which Is Better?

If you have read this far it should be obvious that there is no one-size-fits-all solution. TODDs and LBDs are tools, and like any tool it is important to choose the best one for the job. Careful consideration should be given to the pros and cons of each in light of your particular circumstances, so it is best to consult with your lawyer and not rely on forms you find on the internet or in office supply stores, which may be incomplete, outdated, or designed for another state.

At the law firm of Roberts & Roberts, our years of experience in the fields of real estate and estate planning, together with our connections in the title industry, give us unique advantages that we pass along to our clients. If we can be of assistance in working with you on a plan to pass your property on after your death, we would be pleased to consult with you.

Roberts & Roberts, LLP