Texas allows for the transfer of real estate at death without requiring probate through two notable mechanisms: Transfer on Death (TOD) Deeds and Lady Bird Deeds (also known as Enhanced Life Estate Deeds). Each serves a unique purpose and operates under different legal frameworks. Let's explore how each works in Texas.
Transfer on Death (TOD) Deeds
A Transfer on Death (TOD) Deed allows a property owner to name a beneficiary or beneficiaries to inherit the property upon the owner's death, bypassing the need for the property to go through probate.
How it Works:
- The property owner executes a TOD Deed, which must meet specific requirements, such as being notarized and recorded in the county where the property is located before the owner's death.
- The TOD Deed does not affect the owner's rights to use and control the property during their lifetime. The owner can sell, lease, or mortgage the property and can revoke the TOD Deed at any time.
- Upon the owner's death, the property passes directly to the named beneficiary(ies), subject to any debts or encumbrances on the property.
Relevant Statutes:
- The Texas Estates Code governs the use of TOD Deeds, specifically in Chapter 114. This chapter details the creation, revocation, and effects of TOD Deeds.
Lady Bird Deeds
A Lady Bird Deed, a type of enhanced life estate deed, allows the property owner to retain control over the property during their lifetime, including the right to sell or mortgage, and upon death, the property automatically transfers to the named remainder beneficiaries.
How it Works:
- The property owner (grantor) signs a deed transferring the property to themselves for their lifetime and specifies who will receive the property upon their death (remainder beneficiaries).
- The grantor retains the right to use the property, sell it, or change the beneficiaries without the consent of the remainder beneficiaries.
- Upon the grantor's death, the property passes to the remainder beneficiaries without the need for probate.
Relevant Statutes:
- Texas does not have a specific statute governing Lady Bird Deeds, as they are a form of an enhanced life estate deed recognized through common law practice in Texas.
Transfer on death deeds (TODDs) are allowed in Texas, as are common law "Ladybird Deeds".
Texas is unusual in that it has both:
- a statutory transfer on death deed law, and
- a tradition of allowing so called "ladybird deeds" under common law.
Both of these instruments are similar in what they do -- transfer ownership at the moment of death -- but the statutory TODD deed has limitations on it that are meant to be a simple solution for simple situations.
If you're lucky enough to own your primary residence in one of the 30 states that offer TOD (Transfer on Death) Deeds, it's a great way to transfer your house and avoid probate without the need of a living trust.
- Nolo offers an excellent overview of how to use transfer and death deeds, and how a new owner claims TOD real estate.
- eForms offers Transfer on Death Deeds for 30 different states.
- WillMaker, now includes Transfer on Death Deeds as part of the WillMaker package,
How to Use a TOD Deed:
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Determine Eligibility: First, ensure that the state in which the property is located allows TOD deeds.
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Obtain a TOD Deed Form: You can find forms online or get one from a local attorney. Some county recorders' offices might also provide these forms.
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Complete the Form: You'll typically need to provide details such as the legal description of the property, the current property owner's details, and the beneficiary's details.
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Notarize: Most states require the deed to be notarized. This means signing the deed in the presence of a notary public.
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Record the Deed: Once completed and notarized, the TOD deed must be recorded with the county recorder's office where the property is located. There might be a small fee associated with this.
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Revocation or Change: If you change your mind later on about the beneficiary or wish to revoke the TOD deed, you usually can. This typically involves recording another document (often another deed) that changes or cancels the earlier filed TOD deed.
States That Allow Transfer on Death Deeds (as of 2022):
Western states and Midwestern States allow them, but not so much in the Northeast.
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- District of Columbia
- Hawaii
- Illinois
- Indiana
- Kansas
- Maine
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Mexico
- North Dakota
- Ohio
- Oklahoma
- Oregon
- South Dakota
- Texas
- Utah
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Some other states might have similar mechanisms but under different names or procedures. It's always wise to consult local legislation or a local attorney to understand the current rules in a particular state.
Ladybird Deeds
A Lady Bird deed, often referred to as an "enhanced life estate deed," is a legal document that changes the rights to real estate property ownership. It allows the owner (grantor) to retain complete control over the property during their lifetime, including the ability to sell, lease, or mortgage the property without the beneficiary's consent. Upon the grantor's death, the property automatically transfers to the beneficiary without having to go through probate.
Key features of a Lady Bird deed:
- Control: The grantor maintains full control over the property during their lifetime.
- Avoidance of Probate: Upon the grantor's death, the property transfers directly to the beneficiary without the need for probate.
- Flexibility: The grantor can change the beneficiary or sell the property without the beneficiary's consent.
- Tax Benefits: In many cases, because the transfer is only effective upon death, the grantor doesn't incur gift tax, and the beneficiary can benefit from the "step-up" in basis, which can reduce capital gains taxes if they later sell the property.
States That Allow Lady Bird Deeds (as of 2022): While the use and formal recognition of Lady Bird deeds vary by state, they are most commonly associated with and used in:
Other states may have similar mechanisms or might recognize the concept, but the specific rules, nomenclature, and characteristics might differ.
If you're considering using a Lady Bird deed or any other estate planning tool, it's essential to consult with an attorney familiar with real estate and estate planning laws in your state. They can provide tailored advice and ensure that all documents are prepared and recorded correctly.
AI Prompts for More About TOD or Ladybird Deeds in Texas
Prompt: Does Texas allow Transfer on Death (TOD) or Ladybird Deeds to transfer real estate at death without requiring probate? And if Texas allows either one, Can you explain how the process works in Texas, cite relevant statutes, and link where I can get the correct forms for Texas?
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