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The Hidden Trap in Transfer on Death Deeds 

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When the Texas legislature introduced Transfer on Death Deeds (TODD) in 2015 through Texas Estates Code Chapter 114, many homeowners saw them as simple solutions. Similar to adding a beneficiary to your bank account, TODDs let you name someone to receive your property after death. 

But here’s what many Texas families don’t realize: Transfer on Death Deeds come with a dangerous two-year window that could derail your entire estate plan.

Understanding the Transfer on Death Deed Clawback Period

Most title companies won’t tell you this until it’s too late: under Texas Estates Code § 114.106, creditors get a two-year window after your death to come after your property, even if it’s already been transferred to your children through a Transfer on Death Deed. Think of it like a rewind button that creditors can press. 

How a Transfer on Death Deed can affect your family

You’ve lived in your Georgetown home for 30 years. You had your attorney create a Transfer on Death Deed naming your daughter as beneficiary, thinking you’ve avoided probate and protected your home. Then the unthinkable happens – a serious car accident on I-35 leads to three weeks in the ICU at Seton Medical Center.  

Did you know that the average ICU stay in Texas costs $20,300 for one week? For many of us living in Texas, one unexpected medical emergency could put our family home at risk – even if we’ve spent years carefully paying off our mortgage. 

Now you were smart and planned for the day that you leave this earth, or so you thought.

You used a Transfer on Death Deed to make sure your daughter can have your house passed down to her without having to go through the lengthy and expensive probate process. You also made sure she was the beneficiary on your bank accounts, and to top it off you made sure all your debt was paid off so she could keep the money she inherits and not have to use it to pay off your debt. Congrats, you have done more preparation than most Americans.   

But there was something you didn’t account for. That hefty ICU bill. A single week in intensive care can generate hundreds of thousands in medical bills that you never planned for. 

A collector can go to court, force your estate into probate, and pull that house back in to pay the debt – even if your kid is already living there or has sold it to someone else.  

But don’t be alarmed, we help families avoid this potential pit fall from happening on a daily basis. 

Understanding Enhanced Life Estate Deeds (Ladybird Deeds)

We like to use this example when explaining Ladybird Deeds to families: imagine you’re holding a TV remote that controls your house. With a Ladybird Deed (technically called an Enhanced Life Estate Deed), you keep complete control of the remote during your lifetime – you can watch any channel you want (live in the house), let others watch with you (rent it out), or even trade it in for a different TV (sell the property). The “enhanced” part means you maintain these full property rights without needing anyone’s permission.  

But here’s the clever part: you’ve programmed the remote to automatically transfer to your chosen person the moment you pass away, without going through probate. Unlike a regular life estate, where you’d have to share the remote and get permission to make changes, the Ladybird Deed lets you keep total control.  

This setup has a special bonus under Texas Medicaid rules – since you’re not actually giving away anything during your lifetime, it doesn’t trigger any Medicaid transfer penalties. When properly written under Texas Property Code § 5.041, a Ladybird Deed gives you the best of both worlds: iron-clad control during your life and seamless transfer after death, all while protecting your property from creditors and medical bills. 
Diverse group of coworkers having a meeting, discussing documents and strategies related to Texas estate protection, seated at a wooden table with a laptop.

Creating Effective Property Transfers With a Ladybird Deed

How to Create a Ladybird Deed

A. Property Description Requirements  

  1. Must include full legal description from current deed 
  2. County property records reference numbers 
  3. Current ownership details 

B. Life Estate Reservation Language  

  1. Specific powers to sell, lease, or mortgage 
  2. Right to collect rents and profits 
  3. Authority to change beneficiaries 

C. Remainder Beneficiary Designation  

  1. Clear identification of recipients 
  2. Contingent beneficiary provisions 
  3. Distribution percentages if multiple beneficiaries 

D. Most importantly, find a local real estate lawyer that you trust to help you make sure you are checking all the boxes. 

Working With Other Estate Planning Tools

Integration with Wills and Trusts

Many of our Cedar Park clients ask about combining these deeds with other estate planning tools. Here’s what works best: 

A. Wills  

  1. Ladybird Deeds complement pour-over wills 
  2. Can reduce probate assets significantly 
  3. Provides backup if deed transfer fails 

B. Living Trusts  

  1. Can work alongside revocable trusts 
  2. May offer additional asset protection 
  3. Helps manage multiple properties 

C. Powers of Attorney  

  1. Critical for managing property if incapacitated 
  2. Should include specific authority for deed modifications 
  3. Enables quick response to changing circumstances 

Special Considerations for Blended Families

Protecting Multiple Interests

One of the most challenging situations we handle involves blended families. Here’s how different deeds can help: 

A. First Marriage Children  

  1. Ladybird Deed can guarantee inheritance 
  2. Prevents unintended disinheritance 
  3. Maintains lifetime control 

B. Current Spouse Rights  

  1. Homestead protections preserved 
  2. Life estate options available 
  3. Community property considerations 

C. Combined Strategies  

  1. Split property interests possible 
  2. Staged distribution approaches 
  3. Built-in flexibility for changes 
Two women and a man in a meeting discussing estate planning strategies, with documents and a laptop on a wooden table.

How These Deeds Work in Practice

Over our years helping Cedar Park families, we‘ve seen how these property decisions play out in real life. Let’s share some actual scenarios that might sound familiar.

The Worried Widow's Solution

A retired teacher living in Sun City came to us after her husband passed. Her main concern? “I’ve got three kids, and this house is my only real asset. I want them to have it, but I’m worried about ending up in a nursing home.” 

We used a Ladybird Deed because: 
  • She could still sell or refinance if needed 
  • The property would pass immediately to her children 
  • Most importantly, she’d stay eligible for Medicaid while protecting the home 

Two years later, she did need nursing care. Because we’d planned ahead, her home passed safely to her children while Medicaid covered her care costs. 

The Blended Family Balance

A couple came to us with a common challenge. Each had children from previous marriages, and they owned their Cedar Park home together. The father wanted his workshop to go to his son (a carpenter), while the mother wanted to ensure her daughter would inherit her share of the main house. 

A traditional Transfer on Death Deed wouldn’t work here because of: 

  • Complex division of property interests 
  • Multiple beneficiaries with different shares 
  • Potential family conflicts 

We created a customized Ladybird Deed that: 

  • Split the property interests clearly 
  • Protected both spouses’ rights during their lives 
  • Guaranteed each child would receive their intended inheritance 

The Business Owner's Backup Plan

A man owned both his Georgetown home and a small commercial property where he ran his landscaping business. He was proudly debt-free but worried about potential business liabilities affecting his home. 

His situation was tricky because: 

  • Business creditors could threaten both properties 
  • He needed to maintain business flexibility 
  • His son was gradually taking over the business 

We implemented a two-part solution: 

  1. Ladybird Deed for his home, protecting it from future business creditors 
  2. Different arrangement for his commercial property through his business succession plan 

The result? When he faced a substantial business lawsuit last year, his home remained completely protected. 

Lessons Learned from These Cases

These real situations taught us valuable lessons: 

  1. Timing matters – waiting too long can limit your options 
  2. One size doesn’t fit all – each family needs a customized approach 
  3. Future flexibility is crucial – circumstances often change 
  4. Professional guidance helps avoid costly mistakes 

The Cost of Waiting

Think you have plenty of time to figure this out? Consider this startling fact: 70% of Americans over 65 will need long-term care at some point. The average cost in Texas? $6,300 per month. That’s $75,600 per year that could chip away at your home’s equity if not properly protected. 

Making the Right Choice for Your Family

When families come into our offices, we often hear the same concern: “I’ve worked too hard for this house to lose it to medical bills.” We couldn’t agree more. That’s why understanding these deed options is crucial for every Texas homeowner.

Steps to Take Today:

  1. Review your current deed and property records 
  2. Consider your family’s specific needs 
  3. Evaluate potential future medical costs 
  4. Assess your current estate plan 
  5. Consider impact on Medicaid eligibility 

Take Action Now

Don’t wait until it’s too late to protect your home. We help Central Texas families make informed decisions about their property every day. Let’s have a conversation about which deed option aligns with your goals.  Call us at 512-337-7271 to schedule a property deed review. Your family home deserves the strongest protection available under Texas law.   
Thomas Fortenberry

Thomas graduated from The University of Texas at Austin School of Law with Honors in 2005. Thomas has a background in electrical engineering, business management, and mathematics. Thomas is an active member of the Texas State Bar including the Real Estate, Probate, and Trust Law section. Thomas is also registered to practice before the United States Patent and Trademark Office.

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