A Lady Bird deed, also known as the enhanced life estate deed, and a Transfer on Death Deed are two of the most common probate avoidance deeds, and both are used in estate planning to achieve the goals of the person planning the estate and the future recipients. In both deeds, the property remains under the control of the owner it while the owner is alive, and when the property owner eventually passes away, the deed then passes to the named recipient.
People use these deeds because it can save the time and money that would be spent having to take the estate to probate, which can be wasteful if probate is only needed to change the title on real property. Though some people may also choose to set up a trust in the name of a particular beneficiary, they are often more expensive and administratively cumbersome than either a Lady Bird Deed or a Transfer on Death Deed. Both deeds eventually accomplish the same thing in the end, they do have different pros and cons that differentiate them from one another, and can be appealing to different people.
Texas Lady Bird Deeds convey a property to their new owners (beneficiaries) when the current owner of the property passes away (life tenant). While they are alive, the life tenant reserves an interest called a life estate which essentially allows them to maintain full power over their property during their life. One pro the Lady Bird Deed has over the Transfer on Death Deed is that they are generally prepared as either a general or special deed, and most homeowners have some sort of title policy.
This means that if there was some right to the title to the property found, the beneficiaries of the Lady Bird Deed could make a claim, but the beneficiaries of a Transfer on Death Deed could not. Ladybird deeds are also able to invoke the power of attorney, meaning if there is a need to revoke the deed, or the original owner is unable to change it, a ladybird deed allows power of attorney if they have on recorded; the Transfer on Death Deed does not.
An advantage that the Transfer on Death Deed does have over the Lady Bird Deed is that it allows the owner to name an alternate beneficiary. Though this can be accomplished with a Lady Bird Deed by allowing the main beneficiaries to create joint tenancy and then name others as beneficiaries at the death of the owner. Though possible, it can create problems with Medicaid if one of the beneficiaries is applying for it.
Though they aim to accomplish the same thing, the two deeds have a few key differences between them that may help some people better than others. It is hard to say that one deed is better than another because it is all subjective in terms of what the person wants to accomplish, or how they want their property taken care of after their death.
Overall, the use of these deeds can avoid the costly situation of setting up a living trust, while accomplishing the similar goal. Consult with an estate planning attorney if you have questions about which deed or if a trust would be most appropriate for your situation.