These are sometimes called "Transfer on Death" Deeds, or Enhanced Life Estate Deeds. This is a Deed where the Grantor (the Medicaid beneficiary) transfers a remainder interest in property, but retains a life estate, as well as the power to mortgage or sell the property and keep 100% of the proceeds without the consent of the remaindermen, i.e., the persons to whom the property was transferred.
The life estate terminates at death, so the property is not subject to estate recovery in states that restrict recovery to probate assets, such as Texas.
In Texas, a Medicaid estate recovery claim may be filed against the estate of a deceased Medicaid recipient for covered Medicaid services if the recipient was 55 or older at the time the services were received and initially applied for Medicaid on or after March 1, 2005. These services include nursing home services, home- and community-based waiver services, celiain Medicaid funded attendant services, and related hospital and rescription drug services.
Under Texas law, the "estate", for the Medicaid Estate Recovery Program, is defined as real or personal property included in the probate estate as defined under the Texas Probate Code. This is a key definition because it does not allow for recovery against non-probate assets, such as remainder interests created with the Lady Bird Deed and the interests of beneficiaries in financial accounts bearing a pay on death or joint tenancy with right of survivor-ship beneficiary designation on the account contract.
The Lady Bird Deed, also known as an Enhanced Life Estate Deed, adds a relatively new wrinkle to the traditional Life Estate Deed by giving the Grantor/Life Tenant a retained right to sell or mortgage the property without anyone else's consent or participation. This gives the Grantor/Life Tenant the unilateral right to cancel the remainder interest.
Therefore, the remainderman's interest is really a contingent remainder, contingent on two events:
A. The death of the Grantor/Life Tenant; and
B. The non-transference of the property to a third party by a Grantor/Life Tenant during
the Grantor/Life Tenant's lifetime.
Therefore, we have four important aspects of the Lady Bird Deed:
1. Since the remainderman doesn't know if he will get the property, it is not a completed gift, thus no violation of the transfer-for-value rule for Medicaid purposes;
2. Since the transfer is complete at death without any further action on the part of the persons to whom the property was deeded, there is no requirement for probate, so the property is not part of the probate estate recoverable under the Texas Medicaid Estate Recovery Program;
3. There is no asset owned by the Grantor/Life Tenant at death because the life estate ends, without further action on the part of the Grantor/Life Tenant, upon death; and
4. Lastly, since the transfer is on death, the remaindermen, i.e., the persons to whom the property was transferred, get a step-up in basis for tax purposes in the property.