Decision Tree Chart on Ladybird Deeds vs. Transfer on Death Deeds

Many ask the question on the differences between an Enhanced Life Estate (Ladybird) Deed and a Transfer on Death Deed since both avoid probate. In other words, the grantee/beneficiary of the deed would simply either show a death certificate or file an affidavit of death in the county where the property is located to change the owner to the grantee(s)/beneficiary or beneficiaries named in the deed. Due to ease, quickness and lower costs (in addition to avoidance of Texas Medicaid Estate Recovery for many receiving public benefits), both types of deeds have become popular. Although both have similar benefits, the differences are described in the following chart:

Decision Tree Chart:

Transfer on Death Deed (“TODD”) vs. Ladybird Deed (“LBD”)

Transfer on Death Deed

Ladybird Deed

Property taxes including exemptions (owner responsible until death)

Neutral

Texas Medicaid Estate Recovery avoidance (both types of deeds avoid probate and Texas Medicaid Estate Recovery programs only seek reimbursement if property passes by probate)

Neutral

Warranty of title (TODDs give no warranty of title ownership and defects. LBD grantees have protection from defects in the chain of title)

Advantage

Ability to name alternate grantee/beneficiary (simple to name an alternate if named grantee predeceases the owner/grantor. If grantee of LBD predeceases grantor, then grantor may want to do a new deed unless a trust is the beneficiary)

Advantage

May be signed by agent under financial power of attorney that gives that power (TODDs cannot be signed by an agent)

Advantage

Step-up in basis (grantees on either type of deed do not have to pay capital gains tax on the appreciation of the property to the date of death of the grantor if the property is sold)

Neutral

Possible request of title company to have grantee(s) sign if owner decides to sell property (a LBD is a transfer subject to divestment, so sometimes title companies request)

Advantage

Survival requirement (TODDs require grantee(s) to survive owner/grantor by 120 hours)

Slight advantage

If property has a mortgage and a grantee has questionable credit (Estates Code permits title company to delay sale for two years before giving title insurance)

Advantage

Look-back period impact (since the owner/grantor retains control, neither deed is a penalized event under Medicaid’s five year look-back period which otherwise penalizes applicants from transferring property to reduce countable assets)

Neutral

It should be mentioned that often it is better to have a trust named as the grantee of either a Ladybird Deed or a Transfer on Death Deed for a multitude of reasons including, but not limited to: 1) grantees not being able to agree (which is often the case if there are several grantees) on selling (when and at what price, terms, etc.), leasing or mortgaging the property and what happens if only one grantee continues to live there – trusts can name one or two in charge and still have equal division for the benefit of all beneficiaries); 2) grantee is a minor or disabled (trusts can offer protection by having trusts within the trust, including protection from loss of grantee’s public benefits); 3) grantee has creditor issues (trusts can be created within the trust for protection); 4) control over where property goes after grantee dies (trusts can protect against remarriage issues, etc.); 5) grantee has addiction (alcohol, drugs, etc.) issues (trusts can be created within trusts for the desired protection); 6) providing for incentives (trusts within trusts can create incentives, such as getting a college education); and 7) ease of division especially if unequal amounts are to be given to grantees.

Sometimes it is better to do a Transfer on Death Deed and sometimes it is better to do a Ladybird Deed. However, in either case, if more protection is desired, a trust should be considered as a grantee. It should be noted that property passing by a Ladybird Deed or Transfer on Death Deed supersedes how property passes by Will.

Although there is no equity limit for a homestead if there is a married couple and one needs long-term care Medicaid, if the Medicaid applicant is single the equity limit for a homestead is $730,000 as of January 1, 2025. However, the state still has a right to recoup Medicaid benefits advanced unless there is an exception which is one reason why Ladybird Deeds and Transfer on Death Deeds are often used.

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.