Understanding the Difference Between a Texas Transfer on Death Deed and a Lady Bird Deed
When it comes to estate planning in Texas, real estate is often one of the most significant assets to address. Two important tools that allow property owners to pass real estate to their beneficiaries outside of probate are the Transfer on Death Deed (TODD) and the Lady Bird Deed (also known as an Enhanced Life Estate Deed). While both deeds can achieve similar goals, they have key differences that property owners should understand when creating a comprehensive estate plan.
Benefits of Using a Transfer on Death Deed or a Lady Bird Deed
Both the Texas Transfer on Death Deed and the Lady Bird Deed offer significant advantages for homeowners. These deeds allow property owners to designate real estate as a non-probate asset, meaning that the property passes automatically to a named beneficiary at the owner's death, avoiding the need of filing a probate proceeding.
Both deeds allow the grantor (the property owner) to keep complete control over the property during their lifetime and the grantor can sell, lease, or mortgage, without the beneficiaries' permission.
Key Differences Between a Transfer on Death Deed and a Lady Bird Deed
While both documents offer the non-probate transfer of real estate and lifetime control to the grantor, there are essential differences between the two:
Revocability
A Transfer on Death Deed is completely revocable during the lifetime of the grantor. The grantor can cancel, revise, or even create a new TODD without needing the consent of the named beneficiaries. This gives a high degree of flexibility if the grantor's wishes or circumstances change.
On the other hand, a Lady Bird Deed is generally irrevocable once signed and delivered. Although the grantor retains full rights over the property during their lifetime—including the right to sell or mortgage the property—the designation of beneficiaries typically cannot be altered without executing a new deed or otherwise dealing with the property.
Timing of Beneficiary Ownership
With a Lady Bird Deed, the beneficiary's interest in the property is created immediately upon execution of the deed, although it is subject to the grantor's retained rights. This means the remainder interest (future ownership) exists now, but the beneficiary has no current control over the property.
Under a Transfer on Death Deed, no ownership interest passes until the death of the grantor. This difference can have significant legal and tax consequences.
Historical Background
The Transfer on Death Deed is a relatively new legal instrument in Texas, introduced with the Texas Real Property Transfer on Death Act in 2017. The Texas legislation wanted to create a simple way for Texan residents to pass ownership of real estate property to loved ones, without the need of probate. The creation of this instrument would also reduce the amount of clear title issues lower income Texans were facing.
The Lady Bird Deed, by contrast, has been around much longer. Although not formally recognized in Texas statutes, it is widely accepted through common law practice. The term "Lady Bird Deed" reportedly originated from an example deed created by a Florida attorney, including President Lyndon B. Johnson and his wife, Lady Bird Johnson.
Why You Should Work With an Attorney
Given the legal complexity involved in drafting either a Transfer on Death Deed or a Lady Bird Deed, working with an experienced Texas real estate or estate planning attorney is crucial. Although these deeds seem straightforward, incorrect language or improper execution can lead to title issues, disputes among heirs, and even invalidate the intended transfer.
An attorney can ensure that the deed accurately reflects your wishes, is properly drafted and filed in accordance with Texas law, and considers other important life factors, such as:
The grantor's potential need for Medicaid benefits
Protection from creditors
Complex family dynamics (blended families, minor children, etc.)
Estate tax planning
Coordination with other estate planning documents (wills, trusts, etc.)
Every family situation is different, and what works for one property owner may not be the best solution for another. In some cases, another estate planning tool may be more appropriate than a TODD or Lady Bird Deed.
Conclusion
The Texas Transfer on Death Deed and the Lady Bird Deed are powerful estate planning tools that can help homeowners pass on real estate without probate. Understanding the differences between these two deeds is critical in choosing the right option for your needs.
Consulting with a knowledgeable attorney ensures that your property transfers are made according to your wishes and that your loved ones are protected after your passing. If you are considering adding a TODD or Lady Bird Deed to your estate plan, reach out to an experienced attorney to discuss which option is right for you and your family.
