A Texas parent has four practical ways of transferring property from parent to child before death: a gift deed, a Lady Bird deed, a Transfer on Death Deed, or an outright sale. Each method sets a different balance between control during life, capital gains taxes at resale, gift tax paperwork, and whether the home stays available to help pay for long-term care. The wrong choice can cost a family tens of thousands in avoidable capital gains or trigger a Medicaid penalty at the worst possible moment.
Gift Deed
A gift deed conveys full ownership to the child with no payment expected. Once the deed is signed, delivered, and accepted, the transfer is permanent. The parent loses the right to live in the property, sell it, or borrow against it.
That finality is the main drawback. If circumstances change, the parent has no legal path back to ownership. A gift deed also produces the worst capital gains outcome of any option here, because the child inherits the parent’s original cost basis instead of a stepped-up basis at death.
One detail people miss: an owner’s title insurance policy generally terminates when ownership changes by gift. The child is not covered against pre-existing title defects unless they buy a new policy.
Lady Bird Deed
A Lady Bird deed, also called an enhanced life estate deed, names a child as the beneficiary who receives the property automatically at the parent’s death while the parent keeps full control in the meantime. The parent can sell, mortgage, lease, or revoke the deed without asking the child’s permission. The child has no ownership interest until the parent dies.
This is often the preferred option in Texas because it does several things at once. The property avoids probate, passes directly to the child at death, and qualifies for a stepped-up cost basis because the transfer is treated as an inheritance rather than a lifetime gift. Because it passes outside probate, it also generally sits outside the reach of the Texas Medicaid Estate Recovery Program.
Texas has no specific statute governing Lady Bird deeds; they are recognized through case law and common practice, so careful drafting matters. An agent acting under a durable power of attorney can typically execute one on the parent’s behalf, provided the power of attorney explicitly authorizes real estate transactions.
Transfer on Death Deed
A Transfer on Death Deed (TODD) works much like a Lady Bird deed. The parent keeps full ownership during life, the child takes the property at death without probate, the parent can revoke at any time, and the child receives a stepped-up basis.
Texas law imposes several specific restrictions on TODDs that don’t apply to Lady Bird deeds:
- The parent must sign the TODD personally. An agent under a power of attorney cannot create one on the parent’s behalf.
- The property transfers without any warranty of title, even if the deed language says otherwise.
- For two years after the parent’s death, the property remains subject to claims from the estate’s creditors if the rest of the estate can’t cover those debts.
- The child must survive the parent by at least 120 hours, or the transfer lapses.
- The deed must be recorded with the county clerk before the parent’s death to be effective.
These rules come from Texas Estates Code Chapter 114.1Justia Law. Texas Estates Code Chapter 114 – Transfer on Death Deed A will cannot revoke or override a TODD. If a parent creates a TODD naming one child and later writes a will leaving the same property to a different child, the TODD controls.
Selling the Property to Your Child
A parent can also sell the property to the child at fair market value. That avoids gift tax issues entirely. The child’s basis becomes the purchase price, and the parent may owe capital gains on any profit, just like any other sale.
Some families try a “bargain sale,” selling for $1 or a small fraction of value. The IRS treats the gap between the sale price and fair market value as a gift. A home worth $300,000 sold for $50,000 produces a $250,000 gift, with the same gift tax reporting as an outright gift deed.2Internal Revenue Service. Frequently Asked Questions on Gift Taxes The child ends up with a blended basis that complicates any later resale. Bargain sales rarely accomplish what families think they will.
Homestead and Community Property Require Both Spouses to Sign
This is where many Texas property transfers go wrong. Under Texas Family Code Section 5.001, neither spouse may sell, convey, or encumber the family homestead without the other spouse joining in the deed, regardless of whether the property is community property or the separate property of one spouse.3State of Texas. Texas Family Code FAM 5.001 A deed signed by only one spouse is voidable.
If the property is community property, both spouses must consent to any transfer, homestead or not. Texas is a community property state, so real estate acquired during the marriage is presumed to belong to both spouses. Before starting any transfer, confirm whether the property is separate or community and whether it qualifies as the homestead.
Capital Gains and the Cost Basis Trap
This is the single biggest financial factor in choosing a method, and the one families most often underestimate.
When a child receives property as a lifetime gift, whether by gift deed or bargain sale, the child takes the parent’s original cost basis. If the parent bought the house for $80,000 in 1990 and it’s worth $350,000 today, the child’s basis is $80,000 plus any capital improvements. A later sale at $350,000 produces $270,000 of taxable gain.4Office of the Law Revision Counsel. 26 US Code 1014 – Basis of Property Acquired From a Decedent
When a child inherits property at death, the basis resets to fair market value on the date of death. Same house, same sale price, zero taxable gain. That gap between carryover basis and stepped-up basis can easily represent $40,000 or more in federal capital gains tax.
Lady Bird deeds and Transfer on Death Deeds preserve the stepped-up basis because both are treated as transfers at death. A gift deed locks in the worst tax outcome. For a property that has appreciated significantly, the capital gains math almost always argues against a lifetime gift.
Gift Tax Filing and the Annual Exclusion
For 2026, an individual can give up to $19,000 per recipient per year without owing gift tax or filing a return. Married parents who agree to “split” their gifts can combine exclusions and give up to $38,000 to the same child tax-free in one year.2Internal Revenue Service. Frequently Asked Questions on Gift Taxes
Real property almost always exceeds the annual exclusion, so the parent must file IRS Form 709 by April 15 of the year after the gift.5Internal Revenue Service. Filing Estate and Gift Tax Returns Filing does not necessarily mean owing tax. The excess over the annual exclusion reduces the parent’s lifetime gift and estate tax exemption, which for 2026 is $15 million per individual after the One, Big, Beautiful Bill raised it from $13.99 million.6Internal Revenue Service. What’s New – Estate and Gift Tax Most families never owe actual gift tax, but missing the Form 709 deadline is a common and avoidable mistake.
What Happens to the Mortgage
Most mortgages include a due-on-sale clause allowing the lender to demand full repayment when the property changes hands. Federal law limits when a lender can actually enforce that clause. Under the Garn-St. Germain Depository Institutions Act, a lender cannot call the loan due when residential property with fewer than five units is transferred to the borrower’s children.7Office of the Law Revision Counsel. 12 US Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
The protection is real, but notifying the lender before the transfer is still smart practice. Some servicers are unfamiliar with the exemption and may send default letters that need to be corrected. A brief heads-up prevents unnecessary panic.
Medicaid Look-Back and Estate Recovery
Transferring property to a child can jeopardize a parent’s ability to qualify for Medicaid long-term care benefits. When someone applies, Texas Medicaid reviews all asset transfers made within the previous 60 months.8Texas Health and Human Services. I-2100, Look-Back Policy Any transfer for less than fair market value during that window triggers a penalty period during which the parent is ineligible for coverage. The penalty length equals the uncompensated value divided by the average monthly cost of nursing home care in the state, so giving away a home can leave a parent paying out of pocket for many months.
The Caregiver Child Exception
Federal and Texas law carve out an important exception. A parent can transfer the home to an adult son or daughter without a Medicaid penalty if the child lived in the home for at least two years immediately before the parent entered a nursing home or other institution, and the child’s care is what allowed the parent to remain at home rather than entering a facility sooner. Texas Medicaid requires a written statement from the parent’s physician confirming that the child’s care prevented or delayed institutionalization.9Texas Health and Human Services. I-3100, Transfer of Home
The exception applies only to the parent’s home and only to a son or daughter. It does not cover other real property, and it does not apply to grandchildren, siblings, or other relatives.
Estate Recovery After Death
After a Medicaid recipient dies, Texas can seek reimbursement for long-term care costs through the Medicaid Estate Recovery Program (MERP). MERP reaches assets in the deceased person’s probate estate.10Texas Health and Human Services. Your Guide to the Medicaid Estate Recovery Program Property that passes outside probate through a Lady Bird deed or Transfer on Death Deed is generally not subject to MERP claims. That is another practical reason those instruments outperform a simple will or intestate succession.
How to Complete the Transfer
The mechanics are similar for any method. A new deed must be drafted with the correct legal description of the property copied exactly from the most recent deed or the county’s records, the full legal names of the parent (grantor) and child (grantee), and the type of transfer.
The parent must sign before a notary public or in the presence of two credible subscribing witnesses. Texas Property Code Section 12.001 requires this acknowledgment before the deed can be recorded.11State of Texas. Texas Property Code Section 12.001 – Instruments Concerning Property If the property is the family homestead, both spouses must sign.
The signed, notarized deed is then filed with the county clerk in the county where the property is located. Recording makes the transfer part of the public record and protects the child’s ownership against later claims. Fees under the Local Government Code are $5 for the first page and $4 for each additional page, plus a county records management fee of up to $10 where adopted by the commissioners court.12State of Texas. Texas Local Government Code Section 118.011 – Fee Schedule Typical recording totals run roughly $15 to $30, though some counties add surcharges. For a Transfer on Death Deed, the deed must be recorded before the parent’s death or it has no effect.1Justia Law. Texas Estates Code Chapter 114 – Transfer on Death Deed