Enhanced Life Estate Deeds

Transfer on Death v. Life Estate Deeds

In making estate plans, real estate transfer questions often arise.  Most property owners have similar goals in dealing with real estate.  First, they want to retain as much control over the property as possible while they are live. Second, they want to transfer the title to the property the easiest way possible. Texas recognizes two commonly used forms to transfer title in addition to transferring real property through your Will or a living trust: a transfer on death deed (TOD) and an Enhanced Life Estate Deed, also known as a Lady Bird Deed.  While both deeds have the same ultimate effect in conveying title from you to your loved one, they operate differently while you are alive.

A TOD is a newer form of title transfer and was first authorized in Texas in 2015.  The TOD allows a property owner in Texas to designate a beneficiary to receive the property at the owner’s death. These written instructions work similarly to pay on death instructions used by banks or other financial institutions. On the owner’s death, the named beneficiary receives the property without the need for probate.

An Lady Bird Deed is a more traditional method of transferring title to real property after death. These deeds work by conveying the property to the new owner (called the remainder beneficiary) at death, but reserving a life estate for the original owner. This life estate allows the original owner to use the property during his lifetime.  The life estate is considered “enhanced” as opposed to a typical one because the original owner, now the life tenant, keeps the ability to control what happens to the property during his lifetime.  This means the life tenant can mortgage or unwind the transfer and sell the property to a third party.  These deeds are only used in Texas, Florida, Michigan, Vermont and West Virginia and are not recognized by any other state.

While these two deed forms have the same goals, additional considerations must be factored in determining which one to use in an estate plan. Concerns over possible creditor claims, the Medicaid 5 year lookback and recovery requirements, and whether a Power of Attorney will be used to execute the deed are all important considerations and each impacts the use of a TOD or Lady Bird Deed differently.

If you need assistance addressing any issues relating to estate planning, the attorneys at Waldron & Schneider are here to assist.

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