27 Jan WHO GETS YOUR PROPERTY IF THE GRANTEE/BENEFICIARY OF YOUR LADYBIRD DEED PREDECEASES YOU?
A Ladybird deed is an enhanced life estate deed whereby the named beneficiary (grantee) is to be entitled to the property upon the death of the property owner (the grantor). It is considered a transfer subject to divestment (grantor changing his or her mind unless vested). Upon the death of a grantee, the transfer is considered vested as to that grantee as described below.
A Ladybird deed is a common tool used to avoid probate which also avoids Medicaid estate recovery in Texas against the homestead to the extent Medicaid (typically long-term care Medicaid) benefits are advanced. The homestead is generally not a countable resource in connection with means-tested Medicaid which is often needed since Medicare has limited long-term care coverage and most Americans do not have long-term care insurance or adequate income or assets to pay for care (average skilled care facilities are around $8000 per month in this area).
A common scenario is a parent signing a Ladybird deed whereby a child is the grantee. What happens if the child dies before the parent? When a grantee (i.e., the child) of a Ladybird deed dies before the grantor (i.e., the parent) and the grantor does not revoke the deed before the grantee’s death, the property would pass to the grantee’s estate (i.e. by the grantee’s will if the grantee has a will or by laws of intestacy if the grantee dies without a will). So, even if there were multiple grantees (i.e. three children), the other grantees would not automatically be entitled to the entire property upon the grantee’s death as the deceased grantee’s share would go to the grantee’s estate.
As long as the grantor is living and has sufficient mental capacity, the grantor can still divest if the grantee is living. However, often a grantor fails to “undo” the Ladybird deed prior to a grantee’s death. As a result, it is generally recommended that the grantee be a living trust which can indicate who gets the property after the death of the grantor even if the grantee predeceases the grantor. Further, the trust can give protection if the grantee (1) is disabled; (2) has creditor issues; (3) is on public benefits; (4) has marital issues; (5) has addiction issues; (6) is a minor; or (7) is one of several intended beneficiaries and it is difficult for all to agree on selling, renting, or mortgaging the property after the death of the grantor.
Even though a Ladybird deed is a transfer subject to divestment, it is not a penalized event under Medicaid’s transfer penalty rule.
Finally, it is often recommended that the grantor’s financial power of attorney be reviewed to make sure there is power to revoke and create a new Ladybird deed as long as the grantor trusts the agent named in the power of attorney.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.