We strive to create a future where our children thrive beyond what we ever had. With this in mind, many parents planning for the future ask us: "What's the simplest way to transfer my home to my children without going through probate?" As board-certified experts in Residential Real Estate Law with a focus on our clients’ estate planning needs, our job is to help you make decisions on how to pass on your home to your children after your death.
Two options we frequently discuss are Lady Bird deeds and Transfer-on-Death deeds. While both accomplish similar goals, they work quite differently under Texas law. Let's break down what you need to know about these important estate planning tools.
What Is a Texas Transfer-on-Death Deed in Texas?
A Texas Transfer-on-Death deed (TODD) is a legal document authorized by the Texas Estates Code that allows property owners to designate one or more beneficiaries to receive real property automatically upon the owner's death. This relatively new estate planning tool enables the property owner to retain complete control during their lifetime while establishing a framework for property transfer that bypasses the probate process.
What Is a Lady Bird Deed in Texas?
A Lady Bird deed, more formally known as an enhanced life estate deed, is a deed that has been used in Texas for decades. This special warranty deed allows property owners to transfer real property while retaining a life estate interest with enhanced powers.
Unlike a traditional life estate, the enhanced features of a Lady Bird deed give the property owner the right to sell, mortgage, or otherwise dispose of the property during their lifetime without obtaining consent from the remainder beneficiaries. The transfer to beneficiaries occurs automatically upon the grantor's death, similar to a TODD, but through different legal mechanisms.
Transfer-on-Death Deed vs. Lady Bird Deed: Similarities
Both types of deeds offer several important benefits to Texas property owners:
- Probate avoidance: These deeds enable direct property transfer to heirs, circumventing lengthy and costly probate.
- Life estate control: Owners retain full authority during their life, allowing sales, leases, or mortgages.
- No gift tax: Neither deed triggers gift taxes, as ownership shifts upon the owner's passing.
- Homestead safeguard: Existing homestead rights and tax breaks remain intact for the living owner.
- Revocable arrangements: Both deeds grant the owner the ability to alter or cancel the agreement before death.
- Beneficiary creditor shield: Property is protected from beneficiary creditors while the owner lives, as no present ownership exists.
- Capital gains tax mitigation: Heirs receive a higher tax basis, potentially lowering capital gains upon future property sales.
Texas Transfer-on-Death deed vs. Lady Bird deed: Differences
The following key differences between these instruments may significantly impact your estate planning goals.
1. Creditor Claims Period After Death
Under Texas law, property transferred through a TODD remains subject to the claims of the deceased owner's creditors for two years after death. The Texas Estates Code specifically allows the personal representative or creditors to claim back property transferred by a TODD if the probate estate lacks sufficient assets to cover debts, taxes, and family allowances.
This statutory creditor period often causes title companies to hesitate in providing title insurance until the two-year window closes or until they receive proof that the deceased's debts have been satisfied. Lady Bird deeds, by contrast, are not explicitly subject to this statutory provision, potentially offering smoother title transitions.
2. Title Protection and Warranty Differences
Lady Bird deeds typically include warranty provisions that protect the title of the remainder beneficiaries. These warranties can be valuable if title issues arise after the transfer. In contrast, the Texas TODD statute specifically states that the interest in property transfers without covenant or warranty of title, even if the deed contains contrary language. This lack of warranty protection creates uncertainty about whether the grantor's title insurance policy will extend coverage to the TODD beneficiary.
3. Signature Authority Limitations
The Texas TODD statute explicitly requires that only the property owner can sign a Transfer-on-Death deed. This means an agent under a power of attorney cannot execute a TODD on behalf of an incapacitated property owner, regardless of how broadly the power of attorney is written. Nor can a TODD deed be revoked or amended using a power of attorney. The property owner must execute the revocation or a new TODD. Lady Bird deeds face no such statutory restriction. An agent under a properly drafted power of attorney can execute a Lady Bird deed if expressly authorized to do so, providing a vital planning advantage for those concerned about potential future incapacity. A Lady Bird Deed can be revoked using a power of attorney.
4. Filing Regulations
For a TODD to be valid in Texas, it must be recorded in the county property records before the grantor's death. If this step is missed, the deed is considered void — even if properly signed and delivered to the beneficiary. While recording is also highly recommended for Lady Bird deeds to provide notice and protect against disputes, the validity of a Lady Bird deed doesn't statutorily depend on recording.
Lady Bird Deed or Texas Transfer-on-Death Deed: Which to Choose?
Choosing between these probate avoidance deeds depends on your circumstances and estate planning goals. A TODD offers a straightforward option with statutory backing for many property owners wanting to avoid probate. However, a Lady Bird deed might be preferable if you are concerned about:
- Possible future incapacity where an agent may need to act on your behalf
- Title insurance issues during the two-year creditor period
- Warranty protections for your beneficiaries
- Potential recording delays or complications
- Post-death liens against the home for services provided by Medicaid
Lady Bird Deeds & Transfer-on-Death Deeds: Things to Consider
While property transfer deeds effectively handle real estate, they are just one piece of your estate planning puzzle. A Texas Last Will and Testament remains crucial for several important reasons:
- Addresses assets beyond real property (investments, accounts, personal belongings)
- Provides contingency planning if named beneficiaries predecease you
- Manages debt payment, administrative expenses, and tax obligations
- Allows appointment of independent executors to handle and manage the estate with minimal court involvement, thereby saving the estate considerable money
- Prevents Texas intestacy laws from determining asset distribution
For more complex situations, a revocable living trust offers valuable benefits:
- Comprehensive management of diverse assets
- Detailed distribution instructions
- Privacy protection is not available with public probate records
- Options for professional asset management
- Enhanced planning for potential incapacity
Secure Your Property's Future with Texas Horizons Law Group
Both Lady Bird deeds and Transfer-on-Death deeds offer valuable solutions for avoiding probate while keeping control of your property during your lifetime. However, choosing the right instrument requires careful consideration of your estate planning needs, potential Medicaid eligibility concerns, and family circumstances.
Don't leave your legacy to chance. Contact us today to schedule a consultation with one of our knowledgeable Texas estate planning and probate attorneys who can guide you through the intricacies of property and probate law and create a personalized plan that achieves your goals and provides lasting peace of mind.
