If you want to give away real estate in Texas, you may decide to make a gift deed of your property. This deed is a document that states that you are giving your property to someone else. A gift deed must employ precise language to be valid. Without validity, a court can easily overturn your gift if someone contests the authenticity or contests your intentions to give the property as a gift. Let’s look at what a valid gift deed is and what it does.
Make the Gift Valid
In a gift deed, you must make several things clear with proper legal language.
- Your Intent: As the grantor of the property, you must clearly state that you wish to give the property to a specific person
- Your Delivery: You must give the deed you write to the grantee, even if they don’t use it until the time of your death.
- What You Are Giving: You must state precisely the gift that you are giving to the grantee, including an accurate and detailed description of the property.
The grantee (the one getting the property as a gift) must prove these three things valid to claim the property as their own.
Other Options
There are a few issues to look at when considering gifting property. There may be better ways of accomplishing your goals. Two such options are the Transfer on Death Deed (TODD) and the Lady Bird Deed.
A gift deed is not the same as a Transfer on Death Deed (TODD). A TODD is a relatively new way of giving property in Texas after you die. It allows a property to transfer to an heir upon your death.
A Lady Bird Deed is an enhanced life estate deed. According to texaslawhelp.org, “Lady Bird Deeds are often used in long-term care planning. Lady Bird deeds give you the right to live in, sell, or mortgage the property while you’re alive and gives the beneficiaries on the deed the right to receive the property (if you still own it) when you die. The transfer is contingent on whether you still own the property.”
If you don’t need to gift the property right now, the TODD or Lady Bird Deeds might be better choices to give away real estate.
Gift Deeds are Permanent
Giving away a home is irreversible (unless you keep the gift deed in a drawer somewhere for an heir to find at your death). Unless you are sure of and understand all of the financial implications of giving away a home, this is not a choice to take lightly. If you work with an attorney to draw up a Lady Bird Deed or a TODD, you can still change your mind while you are living.
Capital Gains Taxes
With a TODD or Lady Bird Deed, the property’s value basis is stepped-up when you pass away. A stepped-up value basis means that your heir will not owe capital gains taxes with a TODD or Lady Bird Deed.
With a gift deed, they could owe thousands in taxes if your home has appreciated over the years. (If you keep a gift deed in a drawer and they inherit later after your death, that is different)
Deed of Trust Issues
You don’t trigger your “due on sale” clause in your deed of trust with a TODD or Lady Bird Deed. However, gifting property can cause the name on the Deed of Trust to change. When giving property, some Deeds of Trust have clauses that make your Deed of Trust due immediately. This clause can cause a problem for the person you are gifting if they cannot qualify for their own Deed of Trust.
Qualify for Medicaid
You can qualify for Medicaid as long as your home is worth less than $603,000 and your monthly income is below a certain amount. According to Medicaid Planning Assistance,
“Exemptions include personal belongings, household furnishings, an automobile, irrevocable burial trusts, and one’s primary home, given the Medicaid applicant lives in the home or has intent to live in it in the future and has a home equity interest no greater than $603,000 (in 2021). If the applicant has a spouse living in the home, it is exempt regardless of where the applicant lives and his / her equity interest in the home.”
If you want to qualify for Medicaid, you must not have given large amounts of assets to others in an attempt to “spend down” your estate and qualify for Medicaid. For this reason, Medicaid has a 5-year look-back period to disqualify you from Medicaid if you’ve given away something like a home to try to qualify. If you transfer your home or assets during the five years before applying for Medicaid help, the state may declare you ineligible for benefits.
According to TX Medicaid Law, “the state may “look back” up to 60 months before you applied for a nursing home, ICF/IID or waiver services to determine when your income was reduced, and resources were transferred.”
Prevent Medicaid Estate Recovery
Your heirs don’t have to worry about the state or Federal government taking the house after your death to pay for any Medicaid benefits you received with a gift deed. You also do not need to worry about this with a TODD or a Lady Bird Deed since your estate avoids probate.
Don’t Lose Tax Exemptions
If you use a TODD or Lady Bird Deed, your home won’t lose your “over 65” or “homestead tax” exemptions until after you pass away. With a gift deed, your heir will immediately forfeit any exemption statuses you may have.
Seek Counsel
A trustworthy and knowledgeable attorney’s opinion and advice will provide peace of mind if you decide to give a home or land as a gift. Because tax laws constantly change and estate laws may not be easily understood, working with a deeds attorney who knows all of the recent tax and estate laws will give you the best outcome.
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