Real Estate Strategies in Estate Planning: Exploring the Benefits of Ladybird Deeds

February 1, 2024
Jennifer Nichols

For many people, their real property may be among their most valuable assets. As a result, real estate should be an important component of their estate planning strategy. Whether you own only your home or have a more extensive real estate portfolio, what you do with your real estate can profoundly impact your beneficiaries. One option that presents some significant benefits is a ladybird deed. To discuss whether a Ladybird Deed makes sense for your estate planning goals, call or email J Nichols Law, PLLC, to schedule a consultation.

What Is a Ladybird Deed?

A Ladybird Deed is a specific type of life estate deed. A standard life estate deed transfers legal ownership of a property while retaining the right to use or occupy the property during one’s life. For example:

  • Maria decides to transfer ownership of her home to her adult daughter, Marielle, through a life estate deed. Marielle becomes the legal owner of the property, but Maria retains a “life estate” in the property. This means that Maria has the right to occupy the property until she passes away.

There are various estate planning benefits associated with life estate deeds, but the main disadvantage is that the grantor’s decision is very difficult to reverse in the event that the grantor changes his or her mind. In other words, Maria cannot retake ownership of the property if she later decides that Marielle should not take ownership.

A Ladybird Deed addresses this potentially significant disadvantage by allowing the grantor to retain the right to revoke or change the deed during the grantor’s lifetime. For this reason, the Ladybird Deed is sometimes referred to as an “Enhanced Life Estate Deed.” If she had used a Ladybird Deed, Maria could revoke the transfer to Marielle for any reason and at any time.

Advantages of a Ladybird Deed

Ladybird Deeds can present numerous advantages when it comes to estate planning:

  • Avoids probate. Transferring property via a Ladybird Deed means that the beneficiary does not have to wait for the conclusion of the probate process to take title to the property.
  • Minimizes tax liability. Because the gift isn’t completed until death, no gift tax return is required.  In addition, the property will be valued for income tax purposes at the time of the grantor’s death, potentially minimizing capital gains taxes if the grantee sells the property. The property may also qualify for homestead and other exemptions under Texas property laws.
  • Preserves Medicaid eligibility. For many people, this is the most important benefit of a Ladybird Deed. Texas Medicaid laws provide that a person may not transfer property for less than fair market value within 5 years of seeking Medicaid long-term care.  However, the transfer of a remainder interest that is revocable does not count as a transfer for Medicaid eligibility purposes.  As such, a Ladybird Deed allows you to transfer a remainder interest in your homestead to your loved ones while preserving your Medicaid eligibility. In addition, a Ladybird Deed helps your beneficiaries by removing the property from your probate estate, thereby saving the property from being taken by Texas’s Medicaid Estate Recovery Program after your death.

Contact J Nichols Law, PLLC Today to Discuss Whether a Ladybird Deed is Right for You

While a Ladybird Deed presents many advantages, it isn’t necessarily the best option for everyone. To discuss how it could serve your estate planning goals, call us today at 409-257-7878 or contact us online to schedule a consultation.