Lady Bird Deeds vs. Texas Transfer on Death Deeds: Key Differences, Benefits, and Which Is Best for You

Both Lady Bird Deeds and Texas Transfer on Death Deeds  allow property owners to transfer real estate to heirs without the need for probate. While they share many similarities, they also have important differences. This article will help you understand the similarities, differences, and which deed is best suited for your needs.

Below I will discuss:

What is a Texas Transfer on Death Deed?

A Texas Transfer on Death Deed is a legal document that allows property owners to transfer real estate directly to designated beneficiaries upon their death, without the need for probate. The deed allows the property owner to retain full control during their lifetime and does not become effective until after their death. To be valid, the deed must be signed, notarized, and recorded before the owner’s death.

What is a Lady Bird Deed?

A Lady Bird Deed, also known as an enhanced life estate deed, is a deed created under common law that allows property owners to transfer real estate outside of probate while retaining full control during their lifetime. The property owner can sell, mortgage, or modify the deed without the consent of the beneficiaries.

Similarities between Lady Bird Deeds and Transfer on Death Deeds in Texas

Both Lady Bird Deeds and Transfer on Death Deeds offer key benefits for estate planning in Texas. These include:

• Avoiding Probate: Both deeds allow real estate to pass directly to heirs without going through the probate process.
• No Impact on Gift Taxes: Neither deed counts as a gift for federal gift tax purposes.
• Homestead Rights Protection: Both deeds preserve homestead rights and tax exemptions during the owner’s lifetime.
• Flexibility: Both deeds allow the transferor to change beneficiaries at any time.
• Asset Protection: Both deeds protect property from creditors of the beneficiaries during the owner’s lifetime.
• Medicaid Eligibility: Both allow the property owner to maintain Medicaid eligibility, which is crucial for many seniors.
• Step-Up in Basis: Both provide a step-up in the property’s tax basis upon the owner’s death, reducing potential capital gains taxes for heirs.
• Medicaid Estate Recovery Protection: Both prevent Medicaid estate recovery after the owner’s death.

Key Differences Between Lady Bird Deeds and Transfer on Death Deeds

Despite their similarities, Lady Bird Deeds and TOD Deeds differ in several significant ways:

1. Two Year Clawback Period

Texas recognizes that the use of Transfer on Death Deeds can affect the ability of a decedent’s creditors to recover a deceased person’s debt. Therefore, Section 114.106 of the statute allows the personal representative or creditor of the estate to claw back a piece of property that the homeowner transferred by transfer on death deed back into the estate if the homeowner’s estate is not sufficient to the pay the debts of the estate, related taxes, or allowances to the homeowner’s family.

As a result, title companies may hesitate to insure clear title for two years until the claims period expires, or until they receive assurances that the deceased homeowner’s debts have been paid.

2. Warranties

Ladybird deeds allow homeowners to transfer their interest in the property with warranties, whereas the Texas Transfer on Death Deed statute specifically states that the interest in the property transfers without covenant of warranty of title, even if the deed contains a contrary provision. Therefore, it is not certain whether the grantor’s title policy will cover the beneficiary of a Transfer on Death Deed.

3. Who Can Sign the Deed

The Texas Transfer on Death Deed statute states that only the homeowner can sign a Transfer on Death Deed, whereas no such restrictions exist for a Lady Bird Deed. Therefore, if the homeowner lacks capacity, an agent under a power of attorney cannot execute a Transfer on Death Deed. However, an agent under a power of attorney will be able to execute a Lady Bird Deed if the power of attorney so authorizes.

4. Recording Requirements

In Texas, most deeds do not need to be recorded to be valid. The grantor only needs to execute the deed and deliver it to the grantee. However, there are several benefits of recording the deed. Doing so provides public notice of the property transfer. This can help avoid disputes and ensure that all relevant parties recognize the transfer.  A title company recently refused to accept the validity of a deed my deceased client signed transferring his interest in his home to his trust, arguing that the fact that my client did not record the deed before he died suggested that he may have intended to revoke it.

For a Texas Transfer on Death Deed to be valid, the grantor must record it in the property records of the county where the property is located. If the grantor does not record the deed before the Grantor dies, it is as though it does not exist, even if the grantor signed it and delivered it to the Grantee. If there is a possibility that the Grantor will not be able to record the deed before their death, the Ladybird Deed is a better option.

Lady Bird Deed or Texas Transfer on Death Deed: Which is Better for You?

Choosing between a Lady Bird Deed and a Transfer on Death Deed depends on your specific circumstances. A Transfer on Death Deed is a great option for most homeowners who want to transfer property outside of probate. However, if the homeowner lacks capacity, there is a concern about future title problems, or a desire to sell the property within the two-year claims period, a Lady Bird Deed may be the better option.

Do I Need a Will if I Have a Lady Bird Deed or Transfer on Death Deed?

While a Lady Bird Deed or a Transfer on Death Deed can effectively transfer real estate without probate, they do not replace the need for a comprehensive estate plan. A valid Texas Will or trust is still essential for several reasons:

• Covers All Assets: These deeds only transfer real estate. If you have bank accounts, investments, personal property, or other assets, they still require proper estate planning.
• Provides Backup Protection: If a named beneficiary predeceases you or cannot inherit, a will ensures assets pass according to your wishes.
• Handles Debts and Expenses: A will provides for the payment of debts, taxes, and administrative costs, which deeds alone cannot address.
• Appoints Guardians and Executors: If you have minor children, a will allows you to appoint guardians. It also designates an executor to manage your estate.
• Avoids Unintended Consequences: Without a will, Texas intestacy laws determine asset distribution, which may not align with your wishes.

The Role of a Trust

For those with complex estates, blended families, or privacy concerns, a revocable living trust can provide added benefits by allowing you to manage and distribute assets without probate while maintaining control during your lifetime.

Legal Considerations for Lady Bird Deeds and Transfer on Death Deeds

One thing to watch is whether courts will impose rules that apply to the Transfer of Death Deeds on Lady Bird Deeds. According to legal precedent, if a statute revises the common law, the statute controls. However, the Transfer on Death Deed statute specifically provides that “the statute does not affect any method of transferring real property otherwise permitted under the laws of the state.”

So a question remains about whether courts will interpret Lady Bird Deeds as a “method of transferring real property otherwise permitted under the laws” of Texas. If so, the Transfer on Death Deed statute would not control them. If not, then courts may impose the rules that apply to Transfer on Death Deeds on Lady Bird Deeds.

For example, the Transfer on Death Deed statute permits allows the personal representative  or creditor of the estate to claw a piece of property transferred by Deed, whereas no such rules applies to Lady Bird Deeds. However, I recently learned of a district court case in which a court ruled that a Lady Bird Deed was subject to the claw back provision of the Transfer on Death Deed Statute. There is no appellate court opinion related to this case because the case settled before the appellate court issued a decision.

Conclusion: Get Legal Advice for Your Situation

If you are considering incorporating Lady Bird Deeds or Transfer on Death Deeds into your estate plan, consulting with an experienced Texas estate planning attorney can provide valuable guidance, including assistance with Lady Bird Deeds, Transfer on Death Deeds, and other legal matters.

This article was published on July 30, 2023, and updated on January 30, 2025.