I recently received a request to draft a Lady Bird deed. Being the new attorney that I am, I had to do some in depth research (quick Google search) to see that the "Lady Bird Deed" is a nickname for an enhanced life estate deed. The name was given to the deed by the public after the creator used the names Linton, Lady Bird, Lucie and Lynda for his fictitious cast of characters in a book explaining the usefulness of this type of deed.

What does it do? This deed allows the grantor to transfer property to beneficiaries while retaining a life estate coupled with the power to sell, convey, or mortgage the property without the beneficiaries consent. So what does that mean in English? Basically, through a deed the grantor names a beneficiary who will receive the property upon the death of the grantor. Like a will, the beneficiary has no right to the property prior to the grantor's death which means that the grantor is free to change or revoke it at any time.

I'm sure you're wondering why anyone would want to execute such a deed. Good question my inquisitive reader. The enhanced life estate deed offers many advantages.

1. Medicaid Eligibility During Grantor's Life: The transfer does not count as a transfer for Medicaid purposes. This means that unlike other transfers of real property, it does not trigger a disqualification period for a grantor that is receiving or attempting to qualify for Medicaid. For example, Grandma is about to go into a nursing home and needs to qualify for Medicaid. Medicaid has several eligibility requirements and looks at all transfers made by the grantor in the last 5 years which may subject Grandma to a penalty. Grandma wants to make sure that the house stays in the family after she is gone and is not subject to Medicaid claims. If she transfers the property to Daughter she will accomplish her goal but may not qualify for Medicaid benefits until the 5 year lookback period if over. With a Lady Bird deed she will accomplish her goal of keeping the property in the family without risking her Medicaid benefits.

2. Medicaid Estate Recovery After Grantor's Death: A home held under such deed passes to the beneficiary outside of probate. Since the MERP in Texas currently only looks for property subject to probate, the Medicaid Estate Recovery Plan will not seek recovery of any claim for Medicaid payments that it may have through sale of the property.

3. Tax Benefits: Beneficiary may receive a stepped up basis in the property at fair market value of the property on the date of Grantor's death. Further, execution of a Lady Bird deed is not a taxable event for gift tax purposes.

4. Low Cost: Execution of a Lady Bird deed cost less than alternatives such as setting up a trust.

5. Grantor Maintains Rights and Exemptions: The grantor has flexible rights and control over the property and can preserve any homestead exemption on the property.

So what are the disadvantages or risks? Some title companies may not want to insure title under such deed when the time comes that the beneficiary wants to sell the property. This isn't a huge risk because he or she should be able to find a different title company that is more familiar with such deeds that will insure it. Another risk is that the laws and/or policies change and Texas starts looking outside of probate for property subject to MERP claims. Texas doesn't have a statute that specifically addresses enhanced estate deeds like a few other states do. Although Texas recognizes such deeds, Texas law is a bit fuzzy on the issue.

To sum it up, although the effectiveness of the Lady Bird deed could change at any time, Lady Bird deeds are currently an effective tool for avoiding Medicaid transfer penalties and estate recovery.

So you have a will and have left everything to be split equally between your children. So what is everything? Your bank accounts? Your CDs? Your 401K? Your insurance policies? Some of these assets pass outside of the will after ones death. When thinking about estate planning, it's important that you check with your banks, 401k administrators, and insurance companies to see if you have already designated someone to receive these assets upon your death.

For example, 30 years ago you set up your bank account. When filling out the paperwork you came to a section that asks if you want to designate a person to receive what's in your account if you should die. You, single at the time, named your sister as the beneficiary. Your sister will receive the account upon your death regardless of what you put in the will. Another scenario occurs later on in life when you need someone to help you take care of your finances. Lets say a 75 year old woman adds her daughter to her account so that the daughter can help her with bills and other financial transactions. In the woman's will, she asks that all of her money be split evenly between her 8 children. Who gets the money? Well if the daughter was added as a joint owner with rights of survivorship, the daughter will likely receive all of the money. That was not the woman's intention. All she wanted was some help taking care of her finances.

Payable on death accounts, transfer on death designations, and joint bank accounts can be great estate planning tools that allow assets to pass without the need to probate a will. However, it's important to get informed and be aware of how your assets are set up so that those who you currently intend to leave your assets to, would actually receive them.