What is a “Lady Bird” Deed?

DISCLAIMER: The information contained in this article is provided by BOOK LAW FIRM and is provided for educational and informational purposes only and should not be construed as legal advice or as an offer to perform legal services on any subject matter.

When a client needs Medicaid to pay for long-term care[1], there are a number of strategies she can employ to qualify for the government benefit. Using an enhanced life estate deed (a.k.a. a “Lady Bird” deed[2]) is one of them.

How does a Lady Bird deed work? Lady Bird deeds allow a property owner – lets call her “Lady Bird” – to transfer title ownership to her beneficiaries but keep a whole bunch of rights for herself. Once the transfer is done, Lady Bird no longer technically “owns” the property, but the deed allows her to keep the right to live in the property for life, sell the property, or take out a loan against it if she wants. ANNND she can do all this without the beneficiaries’ consent. So while Lady Bird is alive, she can go on Medicaid. When Lady Bird dies, the property is not a part of her estate because title has already been transferred to her beneficiaries. Thus, Medicaid cannot recover against the property.

So, to recap: Assuming she otherwise qualifies, Lady Bird can use the deed and go on Medicaid without penalty. Plus, Medicaid cannot recover against her house at her death because her beneficiaries already own it. Brilliant.

Is there a catch? There’s always some sort of catch. First, not every state allows Lady Bird deeds. Texas does, which is great, but depending on where you live you should consult with an attorney in that state. Second, the Lady Bird deed is one option among many for planning for long term care. In the legal world, one size never fits all. What is true for one client may not be true for another. Third, some title companies will insure title transferred by a Lady Bird deed and some will not. Make sure you have evaluated all options with a professional before moving forward.

[1] Generally speaking, the phrase “long term care” refers to care for individuals with chronic, ongoing illnesses or disabilities, equal to the level of care provided in a nursing home.

[2] A “Lady Bird” deed has nothing to do with Claudia “Lady Bird” Johnson, wife of U.S. President Lyndon B. Johnson. “Lady Bird” was a fictional character created by the attorney who drafted the first such deed and used by him to explain how these deeds work. Their formal name is “enhanced life estate deed” but has come to be known in the industry as the “Lady Bird” deed.

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