Claudia “Lady Bird” Johnson is a well-known Texan and regarded by many as one of the first First Ladies of the United States to take an active political role alongside that of the President. However, for Texans, the term Lady Bird can refer to more than the former First Lady, as a “lady bird” deed is a type of Houston estate planning instrument that can be used to avoid probate in certain circumstances.
Probate is the process by which a court formally acknowledges the death of an individual, verifies a decedent’s will, and effectuates the decedent’s wishes as noted in their will. However, the probate process can be both lengthy and costly, and many families take affirmative steps to avoid probate.
A lady bird deed is also called an enhanced life estate deed. To better understand what a lady bird deed is, and whether it will be beneficial in a particular situation, it helps to be familiar with a life estate. A life estate is an arrangement by which the owner of a piece of property (the grantor) reserves the right to use the property during their lifetime. However, upon the grantor’s death, the property will pass to the named beneficiary, or grantee. One of the primary concerns about using life estates is that the grantor cannot sell or mortgage the property once the life estate is in effect.
A lady bird deed is different from a traditional life estate in that the grantor not only reserves the right to use the property as they see fit during their life, but they also retain the right to sell or mortgage the property. Legally speaking, the grantee’s interest is referred to as a “contingent remainder.” Texas is one of only a handful of states that allows the use of a lady bird deed, along with Florida, Michigan, Vermont, and West Virginia.
Lady bird deeds have several important features, including:
- The grantor can sell or mortgage the property;
- The grantor can cancel the deed entirely;
- The grantor avoids the federal gift tax; and
- The grantor is protected from claims against the property made by the grantee.
Lady Bird Deeds and Medicaid Planning
One of the primary uses of a lady bird deed is in the context of Medicaid planning. To qualify for Medicaid, an applicant must meet certain asset and income limits. If an applicant is over the asset limit, they will likely be required to “spend down” their assets by paying out-of-pocket for long-term or nursing home care. If an applicant uses a life estate to transfer ownership of a piece of property within the five years before applying for Medicaid, they will likely be subject to an eligibility penalty. However, because a lady bird deed is not legally considered a transfer, it is an excellent way to effectively transfer ownership without risking a Medicaid eligibility penalty. Lady Bird Deeds also protect the home from any Medicaid Estate Recovery Program (MERP) claims that may come after the Medicaid recipient passes.
Are You Planning for Long-Term Care?
Planning for the eventual need for Houston long-term care is a daunting process. However, as overwhelming as the process is, it is even more critical to the future of your family. At the Houston estate planning law firm of McCulloch & Miller, we help families effectively plan for their future, as well as for the future of the coming generations. Our dedicated team of Houston Medicaid planning attorneys are keenly familiar with asset protection principles, probate avoidance, elder law, and other matters related to estate planning. To learn more, call 713-333-8900 to schedule a consultation today.