If you’re shopping around for a way to avoid probate for your house or other real estate, you may run across something called a “Lady Bird” deed. It offers a simple, inexpensive way to transfer real estate at your death, without probate.
A Lady Bird deed may be a good idea if you think you might need Medicaid, the joint state-federal program that helps many Americans with nursing home costs. It may help preserve your eligibility for Medicaid and keep assets in the family that otherwise would be taken by the state to repay the cost of Medicaid benefits you receive during your life.
These deeds have some drawbacks, however, and they are used only in a few states.
These deeds are also called “enhanced life estate” deeds. With a standard life estate deed, you could name a beneficiary to inherit your property while you keep ownership of it for your lifetime, but with significant restrictions. You wouldn’t have the right to sell or mortgage the property, and you might also be liable to the beneficiary you named if you greatly decreased the value of the property—for example, let a house fall into serious disrepair.
By contrast, an enhanced life estate deed (the Lady Bird deed), lets you:
Medicaid benefits are intended for people who can’t otherwise pay for their medical care. So if you apply for benefits, you must say how much money and property you have. Some assets, however, aren’t counted for purposes of Medicaid eligibility. Typically, your primary residence isn’t counted when Medicaid adds up the value of your resources. It may be completely exempt, or exempt up to a certain value. For example, if your state exempts residences up to $750,000, then any value above that amount will be counted as a resource belonging to you.
When you apply for benefits, you must also disclose any assets you’ve given away in the previous few years, called the “look-back” period. Otherwise, people could simply give away their valuable assets to family members, claim poverty, and receive Medicaid benefits. If you’ve given away valuable property, it may disqualify you from receiving benefits for a certain period of time.
For example, if you had transferred your house to your daughter within the look-back period, it could make you ineligible for benefits. If, however, you had executed only a Lady Bird deed, it wouldn’t be considered a transfer that you had to disclose to Medicaid. That’s because you keep complete control over the property. So if your state doesn’t count the value of your residence for purposes of Medicaid eligibility, your continuing ownership won’t make you ineligible for benefits.
There’s another Medicare-related reason to use a Lady Bird deed, which helps your family members after your death. If you receive Medicaid benefits during your life, then after your death, the state will make a claim for repayment from the assets you leave behind. Federal law requires every state to have such a Medicaid “estate recovery” program.
Some states make payment claims only from the probate estate—that is, the property that goes through probate after your death. Others go after any property you leave, whether or not it goes through probate. For example, a state might make a claim on a payable-on-death bank account that goes (without probate) to your son at your death.
If you leave your property in a way that doesn’t go through probate, and your state doesn’t seek reimbursement from nonprobate assets, then your family will get to inherit your property without repaying the government for the benefits you received.
These deeds aren’t used in most states, but estate planners sometimes use them in a few states, including Florida, Michigan, and Texas. If you’re interested in using one, you should talk to a local lawyer, to see whether it is authorized by law where you live and whether it’s a good idea in your particular situation. Local custom can be important; in some places, for example, title companies may be reluctant to insure property transferred this way.
In states that specifically authorize transfer-on-death deeds, that may be a simpler and more readily accepted way to avoid probate and also get the Medicare-related benefits of a Lady Bird deed.
Finally, if you’re wondering how the deed got its odd name, it’s not because President Lyndon Johnson ever used this kind of deed to transfer property to his wife, Lady Bird. According to Texas Tech law professor Gerry Beyer, the Florida lawyer who created the deed in the 1980s used the names of the Johnson family in an example showing how the deed worked—and the name stuck.