San Antonio Express-News
November 18, 2003

Lady Bird Deed

copyright 2003, Paul Premack

Texas law contains a variety of methods to legally transfer ownership of real property at the time of death. The most traditional method is to name heirs in your last will and testament, but as you point out, it is likely to go through probate.

Many people shun probate because they think it will be extremely expensive or extremely time consuming. That is true only under fairly rare circumstances, where the legal documentation is flawed or where the family is willing to pay for a battle over the assets. In the vast majority of probates the cost is quite reasonable and the process is handled quickly. The idea of "avoiding probate" really means "selecting the fastest, least expensive way to administer the estate."

Texas law allows several methods of estate administration – some via probate, some outside of probate. A living trust or rights of survivorship are alternative non-probate methods, and so is the legal tool that you are asking about: a "Lady Bird deed." You must ask yourself which method is right for your situation. Some people can be lured into paying for an expensive probate-avoidance plan even though it ends up costing more than probate itself.

A "Lady Bird deed" can be very cost effective when prepared by your attorney. These deeds are more accurately called "enhanced life estate deeds" but got their more colorful moniker (according to unsubstantiated legal lore) because President Johnson once used this type of deed to convey some land to Lady Bird.

"Life estate" is an ownership arrangement for land designed to accomplish two things: 1) it allows the homeowner to retain the use of the home during his/her lifetime, and 2) it transfers title to the home at the time of death without the need for probate.

In a regular life estate deed, the owner keeps the "life estate" and conveys a "remainder interest" to someone who will inherit the property. The current owner continues to occupy and use the property and is entitled to all money that may come from the property. However, the owner cannot sell the property without agreement of and participation by the holder of the remainder interest. Further, the IRS puts a value on the creation of the remainder interest, and if it is large enough there may be gift tax consequences.

A "Lady Bird" enhanced life estate deed adds one feature: the owner keeps the right to sell or give away the land without anyone’s consent or participation. Essentially, the owner has the unilateral right to cancel the remainder interest. As such, there is no taxable gift to be accounted for.

If the arrangements under the Lady Bird deed are not cancelled, then when the owner dies the life estate expires automatically. The remainder interest matures into full, unrestricted ownership. The ownership change happens without probate.