Throughout the process of your Texas estate, you’ll find yourself wondering what the best will, trust, and deed options might be for your situation. It’s important to make sure the right assets are set up to be transferred to the right people, and in a timely fashion, and this means working with a proven estate planning attorney in Fort Worth, Tx. (And yes, we help clients all across the great state of Texas.)
Many clients prefer to have complete control over their property until their death, at which point that property would be automatically transferred to whoever their delegated beneficiaries are. Most importantly, these clients want to avoid the arduous probate process through smart estate planning for their family members.
For these clients, the best plan of action includes a Texas Lady Bird Deed, otherwise known as an Enhanced Life Estate Deed in Texas. In fact, Texas is one of only five states to offer a lady bird deed as an option for clients, and it’s an ideal option for those clients that prefer more control over their assets throughout their lifetime.
What is a Lady Bird Deed in Texas?
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Known by both names, a lady bird deed or an enhanced life estate deed essentially gives more power to the client that’s utilizing it. They’re similar to traditional life estate deeds, however the biggest difference is the ability for the client using it to be able to exercise continued power and authority over their assets without the involvement of the beneficiary.
This continued control throughout a client’s lifetime is valued in many circles – without a lady bird deed, a client would not be able to sell or mortgage their property in question. What’s more – the client may even find themselves financially liable to their beneficiary if they substantially decreased the value of their property.
What are the Benefits of a Lady Bird Deed in Texas?
There are a few attractive benefits that come along with the utilization of a lady bird deed in Texas.
Continued Control – The lady bird deed allows for the original owner to change their mind, make changes to, and alter or sell their property without any sort of involvement from their beneficiary. Essentially, while the original owner is still alive, the beneficiaries have no say in what goes on with the assets.
Avoiding Probate – A common theme throughout most estate planning tools, avoiding probate court is at the top of the list for most, if not all clients. A lady bird deed helps you and your family avoid probate by automatically transferring the property to the designated beneficiary upon death of the original owner.
Federal Tax Benefits – Because of the way assets are classified through the usage of a lady bird deed, anything left to a family member is termed an “incomplete gift” for tax purposes. This classification comes with two important benefits.
First, because of their incomplete status, these assets do not have any gift tax associated with them – there’s no need for the beneficiary to file a gift tax return. Second, the assets are included in the deceased family member’s estate when they pass. Because of this, the property qualifies as adjusted – essentially removing any appreciation that may have occurred while the original owner still retained the asset, which means the new owners will not have to pay as much in income taxes if they decide to sell the property. We discuss these issues in more depth with Q&A at our in-person events in Fort Worth and Southlake, and during our virtual estate planning webinars for greater Texas.
Texas Lady Bird Deed – The Impact on Medicaid
One of the biggest concerns clients have is how their estate planning may impact their ability to receive Medicaid. More importantly, clients are worried about Medicaid draining the value of their assets in order to pay for their care. Through the use of a lady bird deed in Texas, these fears and uncertainties are quelled.
When a client applies for Medicaid, the first thing the administering office will do is evaluate any property transfers that may have occurred within the previous five years. This is known as a “look-back” window, and the value of anything transferred in this period is subject to penalty. This inevitably creates a penalty period where a client may not be eligible for benefits. (We also cover probate in more depth on this medicaid asset protection in Texas post.)
Through the use of a lady bird deed, these property transfers do not need to be disclosed to Medicaid and cannot be used in determining a client’s eligibility for Medicaid. This is because property covered under a lady bird deed is not considered a transfer for Medicaid purposes.
A lady bird deed also comes into play when a client’s family is dealing with Medicaid recovery. Medicaid recovery essentially allows for the state to make claims towards repayment of your care through your estate and the assets you leave behind. States differ in how they define estate assets – however in Texas, it is defined as probate estate. Because a lady bird deed will help you avoid probate, there won’t be any property in the probate estate in the first place, thus your family will not have to repay any costs.
The only way to determine whether or not a lady bird deed is the right plan for you is by working with qualified legal counsel. The expert team at Thomas Walters PLLC can help you get the ball rolling towards protecting your assets and your family – call us today to schedule a consultation!