Dear Mr. Premack: My mother signed a deed transferring her home to us (her children) and retaining a life estate for herself. She also retained the right to change her mind and take back ownership of the house. She recently died, and left the deed unchanged (she never took back ownership). Do we need to probate her Will before we can sell the house? The life estate deed was drawn up by her lawyer in Houston. – NG
The type of deed you describe is sometimes called an “enhanced life estate” or a “lady bird deed”. The myth is that Lady Bird Johnson once used a similar arrangement, and even though no one has been able to validate that theory, the name has stuck.
Lady Bird deeds are used most often when the homeowner might need to qualify for Medicaid benefits, and desires to shelter the home from an estate recovery claim after her death. The legalities behind this concept are complex, but at least for now this technique works to preserve the house for the surviving family members.
Medicaid aside, there are other benefits to a Lady Bird deed. First, the holder of the life estate (your mother) may continue to treat the property as her homestead. Her local property taxes will not go up because the transfer to the children is effective only upon her death.
Second, the holder of the life estate will not have to pay any gift tax on the transfer, because the retained right to take back ownership zeros out the value of the gift. If she decides to rescind the transaction, the kids receive nothing. If she leaves it alone until the moment of her death the children are technically inheriting the property, not receiving it as a gift.
Third, and to the point of your question, so long as the right to rescind is not exercised then immediately upon the death of the life estate holder, the children own the home outright. Probate is not necessary to establish their claim to ownership. Instead, they can simple present to the purchaser (and the title company that will be insuring the transaction) a copy of the Lady Bird deed and a certified copy of the death certificate.
If they were not planning to sell the house, then I would recommend that a proper legal Affidavit be filed with the County Clerk’s real property records. The Affidavit would state that the holder of the life estate (mother) has died, and that consequently the children should be treated as owners of the property. A copy of the Affidavit (and the deed and death certificate if necessary) could be presented to the local Appraisal District to have the tax account changed over to the children’s names as the new owners.
Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2013) practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, March 19, 2010