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LADYBIRD DEEDS – 10 SITUATIONS WHERE IT IS BEST THAT A TRUST RECEIVE PROPERTY INSTEAD OF AN INDIVIDUAL

Ladybird Deeds and Transfer on Death Deeds are used to avoid probate (which is the legal process whereby the court determines if a will is valid and assets are distributed according to the will).  These types of deeds are particularly useful to avoid Medicaid Estate Recovery.  If one receives Medicaid benefits, the government has a right to make a claim against non-countable resources (the homestead is usually the most valuable resource which does not count against the resource limit for eligibility purposes) after the death of a Medicaid recipient to the extent that Medicaid benefits were advanced if the property passes by probate (or intestacy) and if there is no other statutory exemption (i.e. surviving spouse, disabled child, etc.).  Most commonly, Medicaid helps pay for care costs at home, some assisted living facilities, most skilled nursing facilities, plus drug costs.  If the Medicaid recipient is single, a homestead with an equity value of up to $595,000 is a non-countable resource (there is no limit to the equity of a home if the Medicaid recipient is married). 

Ladybird Deeds and Transfer on Death Deeds are used to avoid probate (which is the legal process whereby the court determines if a will is valid and assets are distributed according to the will).

Generally, the Medicaid recipient would prefer their homestead go to their children or someone else rather than having a successful claim for reimbursement by the State.  However, there are many times when it is better that the grantee under the deed be a trust instead of being an individual. Those situations are as follows: 

  • Creditor Protection: If the individual (i.e., child of the Medicaid recipient or grantee of the deed) who is to receive an interest in the property has creditor issues (has been sued or there is concern they will be sued), then it is best the individual’s interest go into a trust designed with creditor protection.
  • Spendthrift Protection: If the individual who is to receive an interest in the property spends money quickly after receipt, then the individual’s interest could go to a trust designed to protect against their spending habits.
  • Disability Protection: If the individual who is to receive an interest in the property is disabled and could not handle their interest or if it is desired that guardianship be avoided, then a trust could be designed so that guardianship of the estate is avoided as to that property interest.
  • Public Benefit Protection: Often, public benefits (such as Medicaid) are “means-tested” and thus the person receiving an interest in the property could have their public benefits jeopardized.  A Special Needs Trust could be a beneficiary which would not result in a loss of public benefits or result in Medicaid estate recovery after that beneficiary dies.
  • Premature Death: If the individual who is to receive an interest in the property dies first, the trust would dictate what would happen. Thus, there could be more certainty as to passage of the assets the way the Trustor of the trust desires instead of leaving passage of assets by mere destiny.  
  • Marital Issues: If the individual who is to receive an interest in the property has marital problems, the trust could be designed for protection.  Even though an inheritance is separate property under Texas law, issues such as spousal support could be affected by having more assets.
  • Beneficiary is a Minor: If the individual who is to receive an interest is too young or immature to handle an asset, a trust could be designed so there is no receipt of the interest until a certain age is selected by the Trustor creating the trust. 
  • Addiction Protection: If the individual who is to receive an interest in the property has an addiction issue (i.e., drugs, alcohol, gambling, etc.), a trust could be designed to protect such property interest from being used to support the addiction.
  • Beneficiary Disagreement Protection: If there are several individuals who are to receive an interest in the property, there often will be disagreement whether to mortgage, sell or lease the property (and at what price).  A trust could be designed where everybody gets their share, but only 1 or 2 people are in control to decide whether to sell, lease or mortgage prior to distribution reducing risk of stalemate.
  • Financial Aid Protection: Often colleges give financial aid based on need.  A trust can be designed to avoid reduction or loss of potential financial aid.

If you would like to hear a podcast on the 10 situations where someone should consider whether to have these elements of protection click here

If you would like to know more, attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102.  We make it simple to attend and it is without obligation.

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