What is a Lady Bird deed?

Enhanced life estate deeds, also called Lady Bird deeds, can be a great tool to transfer ownership of real property at death. Texas estate planning uses them heavily to convey real property without the need for probate.

Florida Today’s recent article entitled, “Real estate transfers: Is a ‘Lady Bird deed’ right for me?” explains that Lady Bird deeds are a type of life estate deed designed to automatically transfer property ownership upon the death of the original owner to another individual. However, they don’t require the original owner to give up use, control, or ownership of the property while alive.  The article is written for Florida law and differs a bit from our Texas experience, so I’ll focus on the Texas version of the Lady Bird deed.  Lady Bird deeds are also used in some other states, such as West Virginia, Michigan and Vermont.

The beneficial receiver of the property upon death doesn’t get any immediate rights or ownership interests in the property, although they do get a vested interest. The Lady Bird deed is rendered obsolete if the original owner sells or conveys the property in their lifetime. However, if the original owner passes away, the property subject to the Lady Bird deed is automatically conveyed to the beneficial recipient without needing to pass through probate.

With a traditional Life Estate deed, the original owner must give up control when adding a beneficial recipient. This means the original owner is prohibited from selling, conveying, or encumbering the property without explicit consent from the beneficial recipient. The original owner also can’t change or end a traditional Life Estate deed without consent from the beneficial recipient.

Conceptually, a Lady Bird deed basically adds a beneficiary designation to your real property.  Like life insurance pays to a beneficiary when you die, the property goes to the named beneficiary when you die.  It is often also a good alternative to immediately transferring real property to beneficiaries.  See here for more ideas as to why:  https://galligan-law.com/is-transferring-the-house-to-children-a-good-idea/

Here are the benefits of a Lady Bird deed:

  • Properties can be conveyed at death without having to pass through probate.
  • The original owner remains in full control of the property while they’re alive.
  • Using and recording the deed doesn’t impact the current owner’s homestead protection, exemptions or mortgage on the property.
  • Any property subject to a Lady Bird deed doesn’t violate Medicaid’s five-year look-back period, avoids Medicaid recovery and isn’t subject to gifting taxes or penalties, since the beneficial owner doesn’t immediately possess any ownership rights.
  • An agent under a sufficiently powered Power of Attorney can create one, which isn’t the case with transfer on death deeds.
  • Preserves step-up in basis compared to immediate gifting of real property

Here are the downsides of a Lady Bird deed:

  • Don’t necessarily help in irrevocable trust planning.
  • Married estate plans incorporating marital trust or bypass trust planning need immediate trust ownership as opposed to receiving property when both spouses pass.

A Lady Bird deed can be an effective tool to transfer property outside of probate. For example, we often created revocable living trust estate plans.  To avoid probate, the trust needs to become the owner or recipient of much of your property.  The easiest way for the residence to avoid probate is to use a Lady Bird Deed (taking advantage of all of the above benefits) naming the trust as the death beneficiary of the deed.  This way, the property goes to the trust upon death without probate, and the Trustee can sell it, distribute it to your beneficiaries, or whatever the trust directs.

In the case of a married couple, we often use a combined approach of creating a right of survivorship agreement between the spousal property owners reserving the enhanced life estate in the survivor.  This means the spouses own the property while both alive, the survivor receives the property automatically without probate and becomes the owner when one spouse dies, and the survivor gets the enhanced life estate to avoid probate at their death.

As a fun final fact, I have read multiple explanations for how the Lady Bird deed got its nickname.  The article references that President Lyndon B. Johnson used one to convey property to his wife, Lady Bird Johnson, and the technique became associated with her name.  I’ve also read that a law school professor used the Johnson family as his example when explaining enhanced life estate deeds, and thus they became associated with the family name. Regardless of the origin, the name is memorable for a frequently used, versatile estate planning tool.

Reference: Florida Today (June 9, 2023) “Real estate transfers: Is a ‘Lady Bird deed’ right for me?”

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Planning for a Loved One with Dementia

Having the conversation about dementia with a loved one is never easy says The Tribune-Democrat’s recent article entitled, “Dealing with dementia | Planning ahead: ‘Have the conversation.’” But, it is important to discuss the future and ensure your loved one is well-cared for.

First, it is important not to wait too long to have this conversation.  Once there is a diagnosis or symptoms, it’s time to act.  Dementia and similar diseases are degenerative so they won’t get better on their own.  Delay in confronting this issue won’t make things better, and can limit your options on how to address it.

Plus, you want to get as much input from your loved one with dementia as you can.  As the disease progresses, they will have a harder time making their own choices, considering their situation and offering direction and preferences for their own welfare.  This could be everything from living arrangements, care plans, estate planning, to bucket list items.  Starting early includes your loved one as much as possible and preserves their own wishes and choice.

Next, address the legal documents and define the future care. Of course, you should have an estate plan in place long before this.  But, dementia will affect a person’s capacity which may make them unable to create a new plan.  So, this may be the last, best opportunity to review and update the estate plan.

You should especially review the incapacity planning documents such as powers of attorney or trusts.  These documents can help prevent the person from being placed in guardianship by the court, which is an expensive, difficult process for families. When granted, the court appoints a decision-maker, taking away the individual’s ability to make decisions – either in whole or in part. This court oversight continues throughout the individual’s life or until capacity returns.

You especially want to review who your fiduciaries are (such as your agent to make financial decisions for you) and the powers you’ve given them.  For example, if you want to use Medicaid to help pay for your long-term care, the power for your agent to make gifts may become important where it wasn’t 15 years ago when you first executed the power of attorney.

Similarly, it is important to update your medical powers of attorney and directive to physicians, as well as discussing your wishes and preferences with your agent.  These documents appoint a person to make medical decisions on your behalf if you can’t, including end-of-life care.  Having the conversation with your agent about your preferences will prepare your agents to make those decisions and relieve the burden of worrying they are making the wrong decisions.

As a final point here, you should discuss the future care plan with your loved one. Is the plan to live at home?  Will family assist with care?  Will in-home care workers be hired to assist, or is an assisted living or nursing home a better idea?   What’s more, how do you pay for it?  It is often important to discuss these question with your financial advisor and an elder law attorney so that you can make an informed choice.  You may also consider whether and how to use Medicaid or other long-term care programs to help pay for future care.  The answers to these questions also impact your estate planning.

Reference: The Tribune-Democrat (July 29, 2023) “Dealing with dementia | Planning ahead: ‘Have the conversation’”

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What Is a Letter of Instruction?

As a lawyer, I love all of the language in estate planning documents.  I can craft the plan however I need so that the client’s goals are met.  I can address a variety of situations, avoid pitfalls and anticipate changes in circumstances, taxes and law.  I can write clear rules for your loved ones to follow and to benefit from.

I can’t, however, convey your beliefs, wishes, wisdom and thoughts for your loved ones. We can’t always convey the why of your estate plan.  As we say at our firm, estate planning is more than money, it is legacy planning.  A letter of instruction can help you pass your legacy to your loved ones.   See the recent Forbes’ recent article entitled, “Letter Of Instruction: Roadmap To Take This Important Estate Planning Step.” for more.

Some letters of instruction are akin to ethical wills which may provide your loves ones with your wishes and thoughts.  Other letters of instruction may serve other purposes. Therefore, you might consider drafting several letters of instruction. One might be a guide for a trusted friend to handle financial and other matters if you have an emergency. A second might be to the person serving as a health care agent who will make medical decisions for you if you can’t do so.  A third might be to a trustee of a trust for your grandchild urging them to prioritize spending on education, starting a business and so on.

Mary wrote an excellent article on ethical wills which you can find here for more:  https://galligan-law.com/estate-planning-attorneys-recommend-that-clients-consider-writing-an-ethical-will-or-legacy-letter/

It is, however, very important to be careful when writing any letter of instruction to avoid conflicts with estate planning documents.  The estate plan has legal effect we don’t want to disturb.  Instead, letters of instruction should be worded in a way that make them merely an expression of wishes and information  and not a change to your estate planning documents.  To that end, you should share a letter of instruction with your estate planning lawyer to ensure the estate plan and letter won’t conflict or lead to a fight in your estate.

Here are some suggested categories you might include in one or all of your letters of instruction.

ICE – In Case of Emergency. A vital purpose of a letter of instruction is to tell someone (e.g., the agent under your power of attorney for financial matters and the agent under your health proxy for medical decision-making) your wishes and critical information. For both your financial and health care ICE letters, you should list the location of the original legal documents.

ICE – In Case of Financial Emergency. For your financial ICE letter, you should indicate where key financial data is maintained and how to access it. In addition, list the bills to be paid and creditor information.

ICE – In Case of Health Care Emergency. For your health care ICE letter, you should provide key health information and indicate where health records are maintained. It is important to add the contact information for healthcare professionals and any particular health challenges. Your health insurance information should also be provided.

Key Family, Advisers, and Other People. Having a list of positions, names and contact information is helpful for everyone to see, so that they know if certain actions they might have to take may be in the purview of someone else. The listing should be by categories that make sense for you. Some of the positions/relationships you might list include the following:

  • Professional Advisers, such as an estate planning attorney, CPA, investment consultant and banker
  • Family; and
  • Trustees of trusts, the executor under your will, and powers of attorney agents

Reference: Forbes (June 18, 2023) “Letter Of Instruction: Roadmap To Take This Important Estate Planning Step”

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