Does a Lady Bird Deed supersede a Will and avoid Probate?

Read this column on MySA.com (the Express-News) by clicking here.

This column first appeared in the Express-News on May 17, 2016. 

2017-05-17Dear Mr. Premack: I have questions I would like answered please. I want to know if the Lady Bird Deed supersedes a Will? Does it avoid probate? – B

A Lady Bird Deed is a property ownership arrangement under which two legal actions take place: 1) the property owner (grantor) retains life estate while granting to someone else (grantee) the remainder interest, and 2) the grantor retains the legal right to rescind the remainder interest to recapture full ownership of the property. This right to rescind is what distinguishes a Lady Bird Deed from a standard Life Estate Deed.

Lady Bird deeds are more properly referred to as “Enhanced Life Estate Deeds” because it is a Life Estate Deed that has been enhanced with the Grantor’s right to reclaim ownership.

Enhanced Life Estate Deeds are most often used, under current Texas legal rules, to help avoid a claim from the Medicaid Estate Recovery Program. When a person qualifies for nursing home Medicaid, they are allowed to retain ownership of their home. However, when that patient dies, the state may bring a claim against the home to recovery taxpayer dollars that were spent to support the patient. That claim can only legally be pursued in probate court. An Enhanced Life Estate Deed avoids the claim because the property passes without the need to go thorough probate.

A properly written, signed and filed Enhanced Life Estate Deed does supersede the terms of the owner’s Will, so long as the grantor has not exercised the retained right to reclaim ownership while living. Superseding the Will means that if the Will leaves the house to Bob but the Deed leaves it to Jeff, then Jeff gets the house. The Will is overcome by the Deed. Further, under the Deed title to the property passes to the grantee without needing to go through probate.

However, if the grantor during life exercises the retained right to reclaim ownership then the Lady Bird deed is canceled. Once canceled, the Will is restored to its role as the primary legal tool for determining ownership of the house. When the owner later dies, transfer of title to the property may require probate of the Will.

It is important to understand that so long as the grantor is alive, the grantee does not yet own the house. Instead, the grantee owns a contingent remainder interest. Because it can be cancelled, it has no monetary value and there is no gift tax when the Enhanced Life Estate Deed is signed. The grantor continues to have Texas homestead protections, including the homestead exemption from judgements and the homestead property tax benefits.

Only after the death of the grantor, assuming the power to reclaim ownership is not used, does the grantee become owner of the property. At that moment, the grantee is treated as having inherited the property from the grantor. As such, for tax purposes, the grantee receives a free step-up in basis.

If avoiding probate is your main goal, an Enhance Life Estate Deed may not be enough. The Deed will avoid probate of the specific real property covered in the Deed, and nothing more. If your estate has more than just a homestead – for instance, a rent house, land in the country, stocks, mineral rights, etc. – then instead of an Enhanced Life Estate Deed you should consider using a Revocable Living Trust.

A Revocable Living Trust can own a wide variety of assets. Unlike an Enhanced Life Estate Deed, a Revocable Living Trust contains specific instructions for the disposition of many assets, and instructions for the care of the grantor while still alive. You should consult with a qualified Elder Law Attorney, who can assess your personal goals and recommend the best legal approach to meet those goals.

3 thoughts on “Does a Lady Bird Deed supersede a Will and avoid Probate?

  1. Mr. Premack:
    In The Texas Federation Register (May-July 2016), page 24, “Failing to probate a Will leads to ownership distress”, concerns me in my current situation.
    My Dad had Lady Bird Deeds for his property, and all accounts were joint, leaving nothing to probate.
    Based upon this article, what I’m understanding is that if a Will is not probated (aka remains private), after four years, the person is considered to have died intestate.
    So, my question is that even though he had Lady Bird Deeds, and we do not have to have his Will probated, do we still need to file it with the Texas Courthouse in the County he resided?

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  2. The article which appeared in the Texas Federation Register deals with a person who did testamentary pre-planning. The person died with a Will, but the Will was never probated. The person did NOT do any non-testamentary pre-planning, like creating a Living Trust or using a Lady Bird Deed. Consequently, when the Will was not brought to probate within the time limit set by the Statute of Limitations, the most likely outcome was that his house would pass via intestacy (not to those specified in his Will). Contrast that to someone who DOES do non-testamentary pre-planning, like a Living Trust or a Lady Bird Deed. The Lady Bird Deed by-passes probate of the property covered by the deed, changing title to that house. When there is proper, binding non-testamentary planning, there is no need to probate, and no worry about the four year Statute of Limitations.

    You do not need to file your father’s Will for probate under these circumstances because his Lady Bird Deed has already passed title to the house. / Paul Premack

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