Enhanced life estate deeds, also called Lady Bird deeds, can be a great tool to transfer ownership of real property at death. Texas estate planning uses them heavily to convey real property without the need for probate.

Florida Today’s recent article entitled, “Real estate transfers: Is a ‘Lady Bird deed’ right for me?” explains that Lady Bird deeds are a type of life estate deed designed to automatically transfer property ownership upon the death of the original owner to another individual. However, they don’t require the original owner to give up use, control, or ownership of the property while alive.  The article is written for Florida law and differs a bit from our Texas experience, so I’ll focus on the Texas version of the Lady Bird deed.  Lady Bird deeds are also used in some other states, such as West Virginia, Michigan and Vermont.

The beneficial receiver of the property upon death doesn’t get any immediate rights or ownership interests in the property, although they do get a vested interest. The Lady Bird deed is rendered obsolete if the original owner sells or conveys the property in their lifetime. However, if the original owner passes away, the property subject to the Lady Bird deed is automatically conveyed to the beneficial recipient without needing to pass through probate.

With a traditional Life Estate deed, the original owner must give up control when adding a beneficial recipient. This means the original owner is prohibited from selling, conveying, or encumbering the property without explicit consent from the beneficial recipient. The original owner also can’t change or end a traditional Life Estate deed without consent from the beneficial recipient.

Conceptually, a Lady Bird deed basically adds a beneficiary designation to your real property.  Like life insurance pays to a beneficiary when you die, the property goes to the named beneficiary when you die.  It is often also a good alternative to immediately transferring real property to beneficiaries.  See here for more ideas as to why:  https://galligan-law.com/is-transferring-the-house-to-children-a-good-idea/

Here are the benefits of a Lady Bird deed:

• Properties can be conveyed at death without having to pass through probate.
• The original owner remains in full control of the property while they’re alive.
• Using and recording the deed doesn’t impact the current owner’s homestead protection, exemptions or mortgage on the property.
• Any property subject to a Lady Bird deed doesn’t violate Medicaid’s five-year look-back period, avoids Medicaid recovery and isn’t subject to gifting taxes or penalties, since the beneficial owner doesn’t immediately possess any ownership rights.
• An agent under a sufficiently powered Power of Attorney can create one, which isn’t the case with transfer on death deeds.
• Preserves step-up in basis compared to immediate gifting of real property

Here are the downsides of a Lady Bird deed:

• Don’t necessarily help in irrevocable trust planning.
• Married estate plans incorporating marital trust or bypass trust planning need immediate trust ownership as opposed to receiving property when both spouses pass.

A Lady Bird deed can be an effective tool to transfer property outside of probate. For example, we often created revocable living trust estate plans.  To avoid probate, the trust needs to become the owner or recipient of much of your property.  The easiest way for the residence to avoid probate is to use a Lady Bird Deed (taking advantage of all of the above benefits) naming the trust as the death beneficiary of the deed.  This way, the property goes to the trust upon death without probate, and the Trustee can sell it, distribute it to your beneficiaries, or whatever the trust directs.

In the case of a married couple, we often use a combined approach of creating a right of survivorship agreement between the spousal property owners reserving the enhanced life estate in the survivor.  This means the spouses own the property while both alive, the survivor receives the property automatically without probate and becomes the owner when one spouse dies, and the survivor gets the enhanced life estate to avoid probate at their death.

As a fun final fact, I have read multiple explanations for how the Lady Bird deed got its nickname.  The article references that President Lyndon B. Johnson used one to convey property to his wife, Lady Bird Johnson, and the technique became associated with her name.  I’ve also read that a law school professor used the Johnson family as his example when explaining enhanced life estate deeds, and thus they became associated with the family name. Regardless of the origin, the name is memorable for a frequently used, versatile estate planning tool.

Reference: Florida Today (June 9, 2023) “Real estate transfers: Is a ‘Lady Bird deed’ right for me?”