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About 2/3rds of us own a home. If we are wise, we pay off the mortgage before we retire. Most of us want to remain there as long as we can – hopefully until the end. Many of us want to pass the home on to our children.

In Texas, this can be done. The VA excludes your home from net wealth in determining your eligibility for non-service-connected disability benefits. Texas Medicaid excludes your home in determining your assets – as long as you have an intent to return home. There is a box you can check on the Medicaid application. Both benefit programs allow you to rent out your home while you are in a long term care facility. For the VA, the rent counts as income. For Medicaid, you should use a special form of short-term lease requiring the tenant to pay all monthly expenses and producing no income: you cannot pay utilities, maintenance and repairs out of your income while you are receiving nursing home Medicaid.

Either someone else can pay the property taxes or you can defer them until your death. But the taxes due will accumulate interest at 5%/year, meaning that you probably will not be able to leave your home to your children.

Leaving your home to your children free of Medicaid Estate Recovery

To leave your home to your children free of Medicaid Estate Recovery and still have control of it while you are alive, you can use either a “Lady Bird Deed” (a General Warranty Deed Reserving an Extended Life Estate”) or a Transfer on Death Deed. A Transfer on Death Deed is always a special warranty deed: by law, your children’s title is uninsurable. This distinction is due to a difference which may only make sense to lawyers. The beneficiary of a Lady Bird Deed owns an interest which you can defease, or cancel, at any time. You can also cancel a Transfer on Death Deed at any time: the beneficiary does not have an interest at all until you die. You might think of the beneficiary’s interest in a Lady Bird Deed as one which ripens on your death and the beneficiary’s interest in a Transfer on Death Deed as one which springs into existence upon your death.

Choosing between a Lady Bird Deed and a Transfer on Death Deed

So which one is right for you?

There are two other aspects to consider. A Lady Bird Deed can be signed, or revoked, by your agent under a Durable Power of Attorney. A Transfer on Death Deed cannot.

Transfer on Death Deeds are forms, or based on forms, created by the Texas legislature. Sometimes this saves money. Sometimes this creates the typical problems which arise when a non-lawyer attempts to practice law. For example, a non-lawyer may have someone who lacks legal capacity sign a Transfer on Death Deed, mistakenly assuming that Texas Medicaid, which has paid for the person’s nursing home care, will never find out. This is a form of Medicaid fraud and exploitation of an elderly person, a first degree felony.

Lady Bird Deeds are typically created by lawyers. If you want to keep your home within the blood line and not risk it passing to an in-law and their children from a previous or subsequent marriage, the lawyer can create a special trust to which you can pass the Lady Bird Deed.

Both Lady Bird Deeds and Transfer on Death Deeds avoid Medicaid Estate Recovery because the home never becomes a part of your estate under Texas law. The Medicaid Estate Recovery Program can only recover from your estate.

Which works better for you depends on your circumstances.


Elder law attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is an Approved Guardianship Attorney. She assists people in elder law, estate and special needs planning, guardianship and settling estates. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.

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