Lesson: Check beneficiary/POD designations
Story: Rick’s wife is deceased, and he has two children, Jack & Jill. Jack always said he would take care of his dad, Rick, as he aged so Rick had a Will prepared leaving a disproportionate share of his estate to Jack and made Jack his Executor and Power of Attorney. Rick aged, got cancer, and needed help but Jack had followed his career out of state and could not help to care for his dad, Rick. Jill lived nearby and was happy to help her dad, Rick, as his health deteriorated. Rick updated his Will to leave Jill a disproportionate share of his estate along with making her Executor and Power of Attorney. Rick wanted to keep things simple, so he had an estate sale and then sold his house; everything Rick owned was reduced to cash and deposited at his bank. Rick passed away forgetting that he had set up his bank account with a Payable on Death (POD) to make the account payable to Jack upon his death. Jill started probate of Rick’s estate and found out that the bank account had a POD to her brother, Jack. Jack got everything and Jill got nothing, which is not what their dad, Rick, wanted. Rick’s Will had no control of the bank account because it was a non-probate asset.
What is the difference between a Lady Bird Deed and a Transfer on Death Deed?
Lady Bird Deeds (or more formally: Enhanced Life Estate Deeds), have been used historically to transfer real property upon death. More recently, the statutory creation of a Transfer on Death Deed (or TODD) offers another way to transfer real property upon death. Which is the better way to go? It depends. Below we offer a comparison of the similarities and differences of what can be done with the two different approaches.
| |
Lady Bird Deed |
TODD |
| Transfers real property upon death? |
Yes |
Yes |
| Flexibility in transfers to beneficiaries (percentages)? |
More |
Less |
| Revocable? |
Yes |
Yes |
| Can offer warranties of title? |
Yes |
No |
| Subject to creditor claims, estate tax, or family allowances? |
No |
Yes |
| Recognized by Medicaid? |
Yes |
Yes |
| Ability to sell, convey, mortgage, or encumber property? |
Yes |
Yes |
| Can be executed by a Power of Attorney? |
Yes |
No |
| Accepted by title companies? |
Yes |
Maybe |
This is a very brief comparison of Lady Bird Deeds and Transfer on Death Deeds. While Transfer on Death Deeds offer simplicity for the layperson to attempt to dispose of a home, which is typically the primary or only asset, Lady Bird Deeds offer more options and flexibility but can be more complex. If you need help with your estate planning or have questions, contact the Law Office of Roy Neal Linnartz, PLLC at 830-625-9300.
Probate is typically not difficult or expensive if you have a well-designed estate plan. However, if you do not have a complex estate, you may desire to plan for probate avoidance. Enhanced Life Estate Deeds (Lady Bird Deeds) or Transfer on Death Deeds (TODDs) can be used to pass real property outside of the probate process.
Bank accounts, retirement accounts, investment accounts, and other accounts with financial institutions can be set up to pass without the necessity of probate. Accounts which are owned by more than one person can be set up to be owned by Joint Tenants with Rights of Survivorship (JTWRS). If one of the account owners dies, the surviving account owner(s) automatically owns the balance of the account. Depending on the type of account, the terminology may differ but the result is the same in naming a Beneficiary, Transfer on Death (TOD), or Payable on Death (POD) designee. While the designee is not an owner of the account, when the account owner passes, the balance of the account passes to the designee.
Vehicles can passed to a beneficiary by using the Beneficiary Designation for a Motor Vehicle form (VTR-121) from the Texas Department of Motor Vehicles. By completing this form, you can designate a beneficiary who will receive your vehicle if you die and the vehicle will not have to go through probate.
The above is a very basic description of some methods of probate avoidance. For more complicated estates, a trust may be necessary to avoid probate. Use of these methods without planning can lead to unintended consequences so you should discuss with your financial planner as well as an estate planning attorney. If you would like assistance with planning for probate avoidance, call the Law Office of Roy Neal Linnartz, PLLC at 830-625-9300.
Do you have a child who is 18 years old and going to college?
Once “children” reach the age of 18, they are now legally adults. Parents can no longer make medical decisions or access medical information unless the adult child grants permission. Also, if a child is no longer claimed as dependent on tax returns, the parents likely won’t be able to get educational information either. If you have a child who is 18 years or age or older and going to college, you may consider having them grant a power of attorney for medical decisions, a power of attorney for financial decisions and educational information, and a HIPAA release for medical information. If your child would like to have powers of attorney and a HIPAA release prepared, contact the Law Office of Roy Neal Linnartz, PLLC at 830-625-9300.
What is the statute of limitations for probating a Will after someone passes?
The statute of limitations for probating a Will is four years from the date of death. However, sometimes the only asset in the estate is real property and because that is typically not sold immediately after a death, people don’t realize they need to probate the Will. There is a method of passing the real property through the Will after four years called probating the Will by muniment of title. The applicant in the probate by muniment of title cannot be at fault for failing to probate the Will. If there is good cause to probate and no fault of the applicant for not having probated the Will, the court can approve the Will as valid and sign an Order stating such. A certified copy of the Will and Order serves to vest title in the beneficiaries of the Will. If you need help with probate, contact the Law Office at Roy Neal Linnartz, PLLC at 830-625-9300.
Do I need to file my Will or should I give copies to my family?
While you may deposit your Will with the County Clerk for safekeeping during your lifetime, it is not necessary to do so. It is typically best to retain control of your Will and to keep it in a safe place. However, the Executor and any successor Executors should know where to find your Will and be able to access it once you are deceased. Sometimes people keep their Will in a safe deposit box but if the Executor does not have access to the safe deposit box, it requires a court order to open and examine the safe deposit box for the Will. The safe deposit box is generally not the best place to store the Will because it can lead to unnecessary delays in probating it. People also often want to give out copies of their Will to family or Executors but that typically is not recommended. If you decide to update your Will at a future date and reduce or eliminate what a beneficiary receives, they may not be happy with the new outcome. They may destroy an updated version of your Will and probate the prior copy which benefits them. In short, it is typically best to maintain control of your Will and not to give out copies.
If you need assistance with a Will, please contact the Law Office of Roy Neal Linnartz, PLLC at 830-625-9300.
What is a Lady Bird Deed and how can I use it as part of my estate plan?
Enhanced Life Estate Deeds (aka Lady Bird Deeds) are a tool that can be used in estate planning to keep real property out of probate. Essentially, the maker of the deed gives a remainder interest in their property to a person or persons, but the maker retains the right to use the property for their lifetime. The maker also reserves the right to change or terminate the terms of the deed, sell the property, or mortgage the property. Because the maker of the deed retains full rights to the property and the right to terminate the deed, it is not considered a gift to the remainder interest holder. Use of this type of conveyance allows the maker to pass the property outside of probate and would not be subject to Medicaid reimbursement claims. Since this type of conveyance is not considered a gift, it can be used to plan for Medicaid to preserve the primary residence as an asset and can be made by a power of attorney (unlike Transfer on Death Deeds). If spouses are making a conveyance simultaneously, we often include a right of survivorship before the conveyance of the remainder interest so the surviving spouse retains 100% ownership. However, this is determined on a case-by-case basis based on the outcome desired. Assuming the property is community property, they could elect to allow their community property to convey upon the first to pass leaving an undivided interest with the surviving spouse.
If you want help with estate planning, Medicaid planning, or a Lady Bird Deed, contact the Law Office of Roy Neal Linnartz, PLLC at 830-625-9300.
The 85th Legislature changed the Estates Code affecting powers of attorney as follows:
- Requires third parties to accept durable powers of attorney (with some exceptions)
- Changing the language of the Statutory Durable Power of Attorney
- Changing the level of fiduciary duty of the agent
- Allowing for the agent to appoint a successor agent
- Allowing for agent compensation and reimbursement
- Allowing for agent to be given additional authorities
- Defines co-agent authority
Older versions of the Statutory Durable Power of Attorney are still valid. However, if you would like to expand what your agent can or cannot do, it may be worthwhile to update your power of attorney.
Maybe.
If your spouse had non-probate assets such as insurance or retirement benefits and you are the beneficiary, you typically get those assets paid out or transferred to you fairly quickly and simply. These typically do not need to go through probate if there is a surviving beneficiary designation.
If your spouse had “payable on death” or “right of survivor” designations on banking and other accounts, they will most likely pass to the surviving spouse.
If your spouse owned real property, it may depend on whether that real property was separate or community and whether your spouse had a valid Will or not.
If your spouse had a valid Will, they could convey their interest in any real property they own to the surviving spouse, whether separate or community. However, their interest, whether separate, or community, will go to the the beneficiary named in their Will. The Will should be probated to transfer title to the property to the beneficiary.
If your spouse did not have a valid Will, the person inheriting the real property will depend on whether your spouse had children with someone other than you and whether the real property is separate or community. If your spouse had no children, or no children with anybody else, you should inherit the real property. If your spouse had children with somebody else and owned separate property, the children will inherit the real property and you will inherit a life estate in one-third (1/3) of the real property (meaning that you can use it during your lifetime). If your spouse had children with somebody else and owned community property, the children will inherit your deceased spouse’s one-half (1/2) interest and you will retain ownership in your one-half (1/2) of the real property. If your spouse did not have a valid Will, an heirship determination and a probate administration should be completed in order to transfer the title of the property.
Here is a link to the Travis County Probate Court’s diagram of descent and distribution without a valid Will:
https://www.traviscountytx.gov/images/probate/Docs/DnD_diagrams.pdf
*The above is an overly simplified answer to the question. There are other scenarios where probate could pass outside of probate such as if the property is held in trust or if there is a transfer on death deed. Contact the Law Office of Roy Neal Linnartz, PLLC for help with estate planning and probate.
In Texas, if you receive Medicaid benefits, the State is required to try to recover those costs by filing a claim against the estate and a house can be used to satisfy that claim, with some exceptions. Medicaid has a 5 year lookback period so if you give your house away or sell it for less than fair market value within 5 years of requiring Medicaid assistance, there may be a penalty imposed or a delay in getting benefits.
One of the best ways to protect a house from a Medicaid claim is through an Enhanced Life Estate Deed, sometimes called a Ladybird Deed or a Transfer on Death Deed. In the Enhanced Life Estate Deed, you keep the right to revoke the deed, to mortgage the property, to sell the property, or do anything with the property during your lifetime. Upon your passing the remainder interest in the property will vest in someone else, perhaps your child(ren). A Transfer on Death Deed allows you to put a beneficiary on your property. Because you have retained ownership and control of the property in either instrument, there is no gift or transfer so it is not subject to the 5 year lookback. When you pass the property immediately passes to someone else so it is not subject to probate and is not subject to a Medicaid estate recovery claim.
If you are interested in protecting your house from a Medicaid estate recovery claim, you should discuss it with an experienced estate planning attorney. Contact the Law Office of Roy Neal Linnartz, PLLC at 830-625-9300 for help protecting your home from Medicaid.
