Effect of a “Lady Bird” Deed on Ownership in Texas
Contributor, Ramsey Strube
In Texas, a Lady Bird deed is a deed that creates a form of a life estate. Lady Bird deeds allow the grantor to remain vested with all ownership rights while the grantor is still alive, and upon the grantor’s death, title immediately vests in the grantee remaindermen. While Lady Bird deeds are not extremely common, they can be a trap for an unwary oil and gas title examiner.
An example of language commonly used in Lady Bird Deeds reads as follows:
Grantor reserves for Grantor and Grantor’s assigns, a legal life estate in the property for Grantor’s life, without liability for waste. Grantor further reserves the full power and authority, without the joinder of any other person, to sell, convey, mortgage, lease, and otherwise dispose of the property in fee simple with or without consideration and without joinder by Grantee, to any person or persons whatsoever, and to keep absolutely any and all proceeds derived therefrom, to the exclusion of Grantee (“Remainder Beneficiary”). Further, Grantor reserves the right to appoint different or additional grantees, remainder owners, sometimes called “remainder beneficiaries” herein, at any time and from time to time without consent of Grantee and Remainder Beneficiary named herein, his successors and/or assigns. Upon the death of Grantor, subject to any interests that may be created by Grantor under the powers reserved herein, full record title shall vest in Grantee, as Remainder Beneficiary.
The language above does not appear to vest any present interest in the grantee. As such, Lady Bird deeds do not truly take effect until the death of the grantor, making the Lady Bird deed a form of a “transfer on death” deed, which are statutorily recognized in Ohio and other states.
Lady Bird deeds are often used for estate planning purposes because as the grantor has not transferred any value to the grantee, the grantor is able to overcome the Medicaid look back period. Upon the death of the grantor, title immediately passes to the grantees; therefore, the property is not seen as an asset of the estate.
Another advantage of a Lady Bird deed is that even after the execution of the deed, the grantor can execute a new deed that changes the grantees, without a formal recorded revocation of the Lady Bird Deed. Normally, when a grantor retains a life estate in a deed, an interest immediately vests in the grantees as remainderman; therefore, if the grantor wishes to grant a remainder interest to a different grantee, both the grantor, as life tenant, and the original grantee, as remainderman, must execute a subsequent deed. The use of Lady Bird language prevents this problem. Because all aspects of ownership are retained by the grantor in a Lady Bird deed, the grantor can execute a new deed changing the grantee, without the grantee joining in the execution.
Finally, a Lady Bird deed also allows the passage of title without the burden of probating a Will. Even though no present interest is granted, upon the death of the grantor, title immediately vests in the grantees.
While Lady Bird deeds are commonly used for estate and tax planning purposes, an oil and gas title examiner should be aware of the effect of a Lady Bird deed on the passage of title. As the language in a Lady Bird deed expresses an expectancy interest to the grantee, a careless title examiner could easily construe a Lady Bird deed as an ineffective conveyance. However, since title immediately vests in the grantees upon the death of the grantor, provided there has been no revocation, it is prudent to understand that ownership will automatically change upon the death of the grantor.
The above information is provided for informational purposes only, and should not be interpreted or construed as legal advice on any subject matter, and may not represent current legal developments. Any person viewing the above should seek legal advice from a licensed attorney prior to acting or refraining from acting, based upon the information provided above. Mazurek, Alford & Holliday, P.C., expressly disclaims all liability with respect to actions taken or not taken based upon any or all of the contents of the information provided above.