Many may be surprised that just because you are named as the grantee (the one generally entitled to the property at death) of a Ladybird Deed (an enhanced life estate deed), it doesn’t mean you would always be entitled to the property on the death of the owner (the “grantor”). A Ladybird Deed grantor reserves for the grantor’s life, the full possession, benefit and use, as well as the rents, issues and profits and the unilateral power of sale of any or all of the property and even the right to change the grantee without the consent of the grantee. Ladybird Deeds are often used to avoid probate (property passing by Will after court order) and are frequently used by elder care attorneys in Texas (Ladybird Deeds are not recognized in all states) to avoid a successful claim for estate recovery if the grantor receives Medicaid benefits such as long-term care costs (either at home or in an institutional setting). In Texas, certain real property (most typically the homestead), is a “non-countable resource” for Medicaid eligibility purposes, but the state has a right to a claim for reimbursement to extent Medicaid benefits (for long-term care costs) have been paid by the state against the estate of the Medicaid recipient. The homestead is generally the resource of the most value (and it generally doesn’t count as a resource). However, in Texas, the right to make a successful claim by the state is only applicable if property asses by intestacy (without a Will) or by Will. A successful claim by the state is avoided if the property passes by “deed” (and not by probate or intestacy) with a Ladybird Deed.
Last year, a grantee of a Ladybird Deed sued after the grantor’s death stating that the grantor could not transfer the property as it would be an impermissible restraint of alienation. The grantor had transferred the property to an LLC after signing the deed. However, the court ruled that since the grantor of the Ladybird Deed retained a “power of sale,” the grantor could transfer the property to anyone they want without the consent of the grantee as the grantee merely had a contingent remainder interest.