Of the many tools available to Texans for planning out the distribution of their assets following their deaths, two of the most commonly used are the Lady Bird Deed (more formally known as an Enhanced Life Estate Deed) and the Transfer on Death Deed (TODD). Both tools allow the signer to convey to another person the right to receive full ownership of a piece of real property upon the signer’s death, while retaining the exclusive right to possess and make use of the property during their lifetime. In most situations, the two are interchangeable. However, there are a few ways in which they differ which may favor the use of one over the other, depending on the circumstance. Though there are a number of ways that a Lady Bird Deed and a TODD differ, here are a few of the most salient when it comes to estate planning.
Avoiding Medicaid Recovery
Both the Lady Bird Deed and the Transfer On Death Deed cause ownership of the subject property to pass directly to the Grantee upon the death of the Grantor, meaning that the property does not pass through the estate of the Grantor and is not subject to seizure by creditors of the estate. This includes the Texas Medicaid Estate Recovery Program (MERP), which seeks reimbursement from the estates of decedents who received medical funding under the Medicaid program. Many Texans who wish to shield their homes or investment properties from potential recovery by the MERP after their death use a Lady Bird Deed or TODD to do so.
The source of the Lady Bird Deed’s effectiveness at protecting property from Medicaid recovery is administrative policy; the Texas Health and Human Services Commission, as an internal, self-created rule, recognizes that properties that have been transferred via Lady Bird Deed are off the table for recovery. The TODD, by contrast, has its roots in the Texas Estates Code. Unlikely though it may be, the Commission could change its internal policy at any time, whereas it would take an act of Congress to remove the TODD’s effectiveness at avoiding MERP recovery. Hence, the TODD is the slightly “safer” option if Medicaid avoidance is the primary purpose of the deed.
Revocability
A Transfer on Death Deed is, by statute, freely revocable by the Grantor during the Grantor’s lifetime. The Grantor can reclaim the property in full by delivering a written revocation to the Grantee, and the Grantee has no recourse. The right of revocation cannot be waived; even if the drafter of the deed inserts language stating that the deed cannot be revoked by the Grantor after delivery, such language will have no effect.
A Lady Bird deed is also freely revocable by the Grantor in the absence of language to the contrary. However, a Lady Bird Deed can be made irrevocable after signing by the inclusion of specific terms to that effect. This can be desirable in some specific situations. For example, an older person with a progressive illness like Alzheimer’s may worry that a diminished mental capacity will leave them susceptible to manipulation as they age. While they still have their full faculties, they may wish to make a concrete gift of property that no amount of deceit, forgery, or intimidation by an estranged sibling or child can later undo. Irrevocability is, of course, a double-edged sword. A property owner ought to put serious thought into the choice to sign an irrevocable Lady Bird Deed, as that choice cannot be undone without the cooperation of the Grantee.
Designation of Alternate Recipients
The provisions of the Texas Estates Code governing the use of Transfer On Death Deeds explicitly allow the Grantor to designate alternate Grantees to receive the property upon the Grantor’s death if the primary Grantee or Grantees are no longer alive. This lets the Grantor name as many backup beneficiaries as it takes to satisfy them that someone of their choosing will receive the property.
A Lady Bird Deed, on the other hand, generally does not contain provisions naming alternate beneficiaries. If the Grantee of a Lady Bird Deed dies before the Grantor and the Grantor does not amend the deed prior to their own passing, the subject property will fall back into the estate of the Grantor. This renders the property subject to the probate process and the claims of creditors, frustrating the very purpose of the deed in some cases.
Execution by Agent Under Power of Attorney
A validly executed Statutory Durable Power of Attorney (colloquially, a “Financial Power of Attorney”) can grant the attorney-in-fact the power to execute a Lady Bird Deed on behalf of the principal, even during the principal’s incapacity (assuming, of course, that the Power of Attorney contains language granting this power and not withholding it). A Transfer On Death Deed, on the other hand, can only be executed by the property owner or owners themselves. Thus, if a property owner has irrecoverably lost the mental or physical capacity to execute a deed, it is too late for their attorney-in-fact to transfer property via TODD.
Which One is Better?
As mentioned above, the Lady Bird Deed and the Transfer On Death Deed can be used for similar purposes, but the differences between them can make them more or less useful under certain facts. Which one is more appropriate for use in a given case is highly dependent on the specific purposes of the deed and the life circumstances of the Grantor. If you or a family member are considering using one of these tools to transfer property, an experienced estate planning attorney can help you choose the one that best fits your needs and can explain the many other options available to you under Texas law.
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