Lady Bird Deed vs. Transfer on Death Deed: Choose wisely

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Do you need a Lady Bird Deed or a Transfer on Death Deed?

Imagine this scenario: An individual, who we will call “Sally,” is someone who travels by plane consistently for work. Sally has an 18-year-old son named Drew, whom she lives with in the Texas home that she owns. As the plane begins to rise into the clouds, BANG! Sally feels an enormous gust of icy wind and hears the screams of her fellow passengers.

Sally wonders if she’ll survive this without getting injured. “Drew needs his mother,” she whispers. The plane rapidly descends without further incident and makes an emergency landing back at the airport. Sally is lucky this time. Drew had never lived alone for more than a few days at a time, and Sally wonders if there is any way she can make sure that Drew wouldn’t be homeless if Sally were to pass away.

What Exactly Is a Deed?

A deed, in general, is a form that allows you to transfer any interest in a home or land that you own to another individual or individuals. A deed can transfer land and/or houses, which is legally called “real property,” in a variety of different ways. When a Texas homeowner dies, their real estate is subject to the probate process in order to transfer title. What many people don’t realize, however, is that real estate can avoid probate with proper planning. The three best ways to accomplish avoiding probate for real property are: (1) Transfer property into a Trust; (2) Transfer on Death Deed; and (3) Lady Bird Deed.

Today, we’re discussing the Lady Bird Deed and the Transfer on Death Deed. These types of deeds are used to transfer real property at the death of the real property owner as a tool to avoid the need for probate. Probate is the court process of getting a deceased person’s property to that person’s heirs or beneficiaries. Just as with other estate planning documents, these should be done while your mind and body are in good health, before you become incapacitated and before you pass away.

What is a Lady Bird Deed?

A Lady Bird Deed is a document allowing a property owner to transfer the property owner’s interest in land or houses to one or more beneficiaries upon the property owner’s death.

The Texas Transfer on Death Deed Act 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 the capacity to enter into a contract, an agent under a durable power of attorney cannot execute a Transfer on Death Deed. However, an agent under a durable power of attorney will be able to execute a Lady Bird Deed if the durable power of attorney permits the agent to execute such deeds.

—See Capacity to Create or Revoke a Transfer on Death Deed – Tex. Estates Code § 114.054

Transfer on Death Deed

A Transfer on Death Deed is a document which a real property owner may use to transfer the current property owner’s interest in land or houses to one or more beneficiaries. Practically speaking, if the property owner lives in several different houses over their lifetime, then they must execute a new Transfer on Death Deed for each house you own since only current property owners can reap the benefit of Transfer on Death Deeds. This transfer of property is effective at the property owner’s death.

—See Definition of Transfer on Death Deed – Tex. Estates Code § 114.051

Transfer on Death Deeds can be created only by the property owner if the property owner is still alive and has the capacity to enter into a contract.  Similarly, Transfer on Death Deeds can be revoked, or undone, by the property owner if the property owner is still alive and has the capacity to enter into a contract. An individual has the capacity to enter into a contract if the individual has an ability to understand the nature and effect of the act and the business being performed. The property owner cannot have their designated agent under their power of attorney create or undo a Transfer on Death Deed on the property owner’s behalf.

—See Capacity to Create or Revoke a Transfer on Death Deed – Tex. Estates Code § 114.054

Are There Any Legal Requirements to Execute Transfer on Death Deed?

To be effective, a transfer on death deed must contain the components of a recordable deed. What this means is that the deed document must describe in writing the name and address of the property owner, the name and address of person or trust receiving the property, which is legally referred to as the “designated beneficiary,” contain the property’s correct legal description, and either be notarized by a notary public or signed by two disinterested witnesses who are over the age of eighteen.

—See Instruments Concerning Property – Tex. Property Code § 12.001

In addition to the necessary information described above, a Transfer on Death Deed must state that the transfer of ownership of the real property to the designated beneficiary is to occur at the current property owner’s death.

—See Requirements of a Transfer on Death Deed – Tex. Estates Code § 114.055

When do each of these deeds become effective?

A Lady Bird Deed does not have to be recorded to be effective; whereas a Transfer on Death Deed must be filed before the current property owner’s death in the deed records of the county where the real property is located.

—See Requirements of a Transfer on Death Deed – Tex. Estates Code § 114.055

What does the Designated Beneficiary have to do to get the real property after the current property owner’s death?

The designated beneficiary of a Transfer on Death Deed must outlive the current property owner by at least 120 hours. A Lady Bird Deed, on the other hand, does not have a requirement that the designated beneficiary outlive the current property owner by a certain number of hours. This means that, under a Lady Bird Deed, the beneficiary could potentially outlive the current property owner by only mere seconds, but still receive ownership of the real property.

– See Effect of Transfer on Death Deed on Transferor’s Death – Tex. Estates Code § 114.103

What if the Designated Beneficiary dies before the current property owner?

A Transfer on Death Deed permits a current property owner to name a different beneficiary, known as the alternate beneficiary, who will get ownership of the property if the main beneficiary dies before the current property owner dies. If a Transfer on Death Deed conditions the right of an alternate beneficiary to take ownership of the real property on the alternate beneficiary surviving another person, the beneficiary must survive the other person by 120 hours. A Lady Bird Deed, on the other hand, does not allow the current property owner to designate alternate beneficiaries to take ownership of the property if the primary beneficiary predeceases the current property owner.

– See Effect of Transfer on Death Deed on Transferor’s Death – Tex. Estates Code § 114.103; see also Disposition of Property to Certain Devisees Who Predecease Testator – Tex. Estates Code § 255.153

How Do Each of These Deeds Affect Title to Property?

If the current property owner first executes a Lady Bird Deed and then later decides to sell the real property they currently own while the property owner is still alive, title companies have been known to require the designated beneficiary to also sign off on the sale. This requirement can be a hassle for property owners and stems from the fact that Lady Bird Deeds come with warranty of title, which warrants the title of the owner and possibly prior owners. Warranty of title allows the designated beneficiary to sue the current property owner’s estate if the property title has an issue. Alternatively, Transfer on Death Deeds do not have warranty of title, which means that if the current property owner decides to sell the real property in their lifetime, the title company will not require the signatures or consent of the designated beneficiary to effectuate the sale of the property.

Where Should I Start?

Always start by speaking to your Estate Planning attorney. Ask them any questions you may have and let them know you want to avoid probate.

Your Estate Planning attorney can customize a deed to meet your individual needs. More importantly, your Estate Planning attorney can help you prevent potentially expensive or even harmful errors in filling out these vitally important documents. Knowing that you are protected if the unthinkable happens is the peace of mind you and your loved ones deserve.

–Authored by Amanda E. Carter, Esq.

Matthew Harris Law, PLLC – Estate Management Division

1101 Broadway, Lubbock, Texas, 79401

Tel: (806) 702-4852 | Fax: (800) 985-9479

[email protected]