Lady Bird Deeds vs Transfer on Death Deed

In Texas, the default for real property – i.e. land and everything attached to that land—is to wind up in the homeowner’s probate estate. What this means is that when the homeowner dies, their real estate is subject to the probate process in order to transfer title. What many people don’t realize, however, is that real estate can avoid probate with proper planning. The three best ways to accomplish avoiding probate for real property are: (1) Transfer property into a Trust; (2) Transfer on Death Deed; and (3) Lady Bird Deed. For more information on Trusts, click here. For the purpose of this post, we are going to focus on options 2 and 3, the Transfer on Death Deed and the Lady Bird Deed. Transfer on Death Deeds A Transfer on Death Deed (“TODD”) is a statutory mechanism to designate who will own real property after you die. With a TODD you get to keep all ownership rights to the property during your lifetime so that you can sell it or use it as collateral on a loan.  Even after filing a TODD, it is a revocable document so you can alter the beneficiaries or revoke the TODD altogether. The TODD takes effect immediately upon your death and designates who the successor owner is to the real property. As such, the real property subject to a TODD never becomes part of your probate estate. How does this work in practice? When you die, you (or an attorney) will file an Affidavit of Death in the real property records to reflect the passage of title. The real property interest you owned at death will then pass according to the instructions in the TODD without requiring probate. If you co-own the property, you may transfer your interest to another joint owner such as a spouse or to non-owners such as your children. You may list more than one beneficiary and beneficiaries can include: a person, an organization, institution, a charity or trust. A great thing about a TODD is that you can designate both a primary beneficiary and a contingent beneficiary. Many clients take advantage of these dual designations, and will designate their spouse as the primary beneficiary with their children as the contingent. In these cases, when the first spouse in a married couple dies, the second spouse automatically becomes the sole owner of the property. When the second spouse dies, the property will automatically divide equally among the children listed as contingent beneficiaries. Types of real property that can be transferred with a TODD are land, homes, buildings, uncut timber, and mineral rights. A TODD cannot transfer personal property such as jewelry, clothing or furniture. You cannot transfer real property in other states. Only about half of the states in the US recognize Transfer on Death Deeds and each has a different set of laws. In this blog, all references to TODD are under Texas law. Lady Bird Deeds Lady Bird Deeds, also known as an enhanced life estate deed, developed under common law. Like the TODD, Lady Bird Deeds allow an individual to transfer property outside of probate when the homeowner dies. Lady Bird Deeds are different, however, in that the homeowner retains a life estate in the property while the beneficiaries inherit the remainder upon the homeowner’s death.   The property owner, who now has a life estate interest in the property, retains the right to revoke the deed and the sell the property. As such, Lady Bird Deeds give the home owner continued control over the probate process while also transferring title directly to beneficiaries outside of probate. Lady Bird Deeds are only recognized in Texas, Florida, Michigan,  Vermont and West Virginia. Although lady bird deeds are not specifically authorized by the Texas Statutes, they are well-established estate planning tools for Texas property owners. Which Should You Choose? It can be difficult to understand the difference between TODDs and Lady Bird Deeds. TODDs are often preferred by estate planning attorneys when contingent beneficiaries are being included, whereas Lady Bird Deeds are advantageous in their ability to be executed (and revoked) by a Power of Attorney rather than the actual homeowner. Furthermore, Lady Bird Deeds hold a slight advantage with creditor protection if the property under the deed is not the Decedent’s homestead and the estate winds up being insolvent. Ultimately, it is important to work with an Estate Planning Attorney to determine whether a TODD or Lady Bird Deed is right for you. Need Assistance with Estate Planning? This blog covers a general review of these two deeds. For more in-depth information or if you have any questions or would like to schedule an estate planning consultation, please contact us at here or you can reach our office by calling (832) 810-3373.