Top 10 Questions: Transfer on Death Deed

In 2015, the State of Texas created the Transfer on Death Deed, enabling individuals to transfer Texas real estate to their beneficiaries outside of  probate.

1.  What is a Transfer on Death Deed?

A Transfer on Death Deed is a special form of deed transferring a piece of Texas real estate from the owner – known as a “transferor” – to the beneficiaries named in it, with the transfer taking effect when the transferor dies.  To be effective:

  • the transferor must be an individual or individuals (not a trust, corporation or other legal entity – only a living, breathing human being);
  • the deed must have the essential elements of a recordable deed (except as described below);
  • state that the transfer of the interest to the beneficiary is to take effect upon the transferor’s death; and
  • before the transferor dies, it must be recorded in the deed records of the county where the property is located.

Unlike your average run-of-the mill deed, a Transfer on Death Deed does not require notice or delivery to, or acceptance by, the beneficiary, during the transferor’s lifetime; nor does it require an exchange of something of value or mutual promises between the parties.

2.  Is it only for “rich people”?

Absolutely not!  In fact, the intent was to help people whose only significant asset is their home, to avoid probate proceedings.  However, the statute was written broadly enough to apply to any individual with an ownership interest in any real estate located in Texas, rich, poor or in-between.

It should be noted however, that unlike other kinds of deeds, a Transfer on Death Deed cannot be created through the use of a Power of Attorney, the actual owner must sign it.

3.  Who can be a beneficiary?

Pretty much anyone.  The statute refers to any person and defines “person” as any individual, or legal entity, including a corporation, trust, estate, or other legal entity.  So, while only individuals can make a Transfer on Death Deed, there is no such limitation on naming a beneficiary.

4.   How many beneficiaries can I have?

As many as you like, there is no limit.  If you name more than one, you might consider what should happen to a beneficiary’s share if they die before you.  You can either have that person’s share go to that person’s heirs or have it reallocated to the remaining beneficiaries.  If you don’t address the issue, the statute dictates what happens.  For more information see the next question.

You should also consider whether you want the beneficiaries to share equally or in different proportions.  If you don’t specify the allocation shares, the statute automatically gives them equal shares.

5.  What if my beneficiary dies first, or doesn’t want the property?

a.  If a beneficiary dies first.

(i)  Only one beneficiary.

If a beneficiary dies before the transferor, or even dies less than 120 hours after the transferor, the interest “lapses”; that is, it ceases to exist.  If that is the only named beneficiary, the Transfer on Death Deed has no effect.

(ii) Multiple beneficiaries.

It’s more complicated with multiple beneficiaries.  Unless a Transfer on Death Deed says otherwise, the following rules apply:  If a deceased beneficiary is a descendant of the transferor or of a transferor’s parent (for example, a child or sibling of a transferor), their share goes to their next of kin.  If a deceased beneficiary is NOT a descendent of the transferor or of a transferor’s parent, the deceased beneficiary’s share goes to the remaining beneficiaries.

b.  If a beneficiary doesn’t want the property.

It’s certainly possible that a beneficiary may not want the property.  So, consider discussing it with them before you create a Transfer on Death Deed.  Even if a beneficiary wants the property now, things may change for them later on down the road.  If, at the time of a transferor’s death, a beneficiary doesn’t want the property, they can “disclaim” their interest in the property.  That is, they can officially refuse to accept the property.  The statutes dictate precise rules on when and how to disclaim.  They also dictate who ends up with the disclaimed property.  Failure to properly disclaim an interest results in the beneficiary getting the property whether they want it or not.

Some of these complications can be avoided by a well-written Transfer on Death Deed drawn up by a knowledgeable attorney.  The right wording can go a long way to help you meet your objectives.

6.  Can I revoke a Transfer on Death Deed?

You sure can!  In fact, there are two ways a Transfer on Death Deed may be revoked: (i) voluntarily by the transferor; or (ii) by certain events that automatically revoke it.

To voluntarily revoke, the transferor either signs and records a new Transfer on Death Deed different than the prior one, or signs and records a revocation statement.  Either way, the document has to be filed before the transferor dies.  The statute dictates what has to be in the revocation statement.

There are a few situations where a Transfer on Death Deed can automatically be revoked.  First, if there is a transfer of an interest in the property evidenced by a written document filed before the transferor dies, in the real property records of the county of the property, that interest is no longer covered by the Transfer on Death Deed.  The statute is so broad, that merely borrowing against the property might be enough to extinguish it.  Second, if a transferor named their spouse as a beneficiary and then they get a divorce, the Transfer on Death Deed will automatically be revoked if a Notice of Divorce Judgment is filed in the real property records where the property is located.  The statute specifies what should be in such a notice.

Special rules apply when there are multiple owners.  See the next question for more information.

7.  What if there are multiple owners of the property?

It depends on whether any of the co-owners are individuals, the form of ownership, and how it can be revoked.

a.  Types of co-owners.

Only individuals can create a Transfer on Death Deed.  Any co-owner of the property that is not an individual (for example, a trust, corporation or some other entity) cannot transfer their share of the property with a Transfer on Death Deed.

b.  Form of ownership.

If the owners hold  the property as joint owners with rights of survivorship, the Transfer on Death Deed doesn’t  kick in until the last of the owners dies.  Until then, the property remains with the joint owners.  So, if you want your property to go to your beneficiaries but you are only one of the owners, there is a risk that your wishes won’t come true.  If you are not the last to die, one of your co-owners could transfer some or all of the property after you die.

If co-owners don’t have survivorship rights in each other’s portions, a Transfer on Death Deed will take effect on the death of the transferor.  Of course it only applies to that co-owner’s share of the property, not the whole thing.

c.  Revocation.

Special – and complicated – rules apply for revocation of a Transfer on Death Deed when there are multiple owners:

  • Each co-owner could have their own Transfer on Death Deed.  Revocation by one co-owner does not affect the other co-owners’ separate Transfer on Death Deed or Deeds.
  • One Transfer on Death Deed made by co-owners with rights of survivorship – all living co-owners must join in the revocation.
  • One Transfer on Death Deed is made by joint owners without rights of survivorship – any one of them can revoke it, but the revocation only applies to their share of the property; the rest of the property will still be subject to the Transfer on Death Deed.

8.  What about my tax exemptions; my creditors?

Good news! A Transfer on Death Deed does not change your property tax exemptions while you are alive.   The statute protects all real estate property tax exemptions, but specifically lists the tax exemptions for:

  • homestead;
  • over-65 exemption;
  • persons with disabilities; and
  • veterans.

The exemption of homestead from certain creditors also remains in place.

If a mortgage is on the property before the Transfer on Death Deed was recorded, the debt continues to be on the property.   The creditor will have to go through a probate proceeding to enforce its claim against the property. So, while the statute was intended to avoid probate, it may not be avoided if there is a debt on the property at the time of the transferor’s death.

If a you pledge any portion of the property for a loan after creating a Transfer on Death Deed, it is not entirely clear what happens  next.  It appears that that action could trigger an automatic revocation; the Transfer on Death Deed would be of no further effect.  Indeed, a renewal, refinancing or other modification of an old mortgage may also revoke the Transfer on Death Deed.

9.  What if my will already says who will receive my real estate?

A Transfer on Death Deed trumps your will.  Your will takes over if the Transfer on Death Deed is revoked.

10.  Do I still need a will if I have a Transfer on Death Deed?

Absolutely!  In some cases, as noted above, a Transfer on Death Deed can be rendered ineffective.  Also, a will covers more types of property than just your real estate.  It can also appoint an executor of your estate, guardians for your children, trustees for any trust created in it, etc.  Think of a will as a kind of insurance policy – it is there if you need it.

Conclusion

A Transfer on Death Deed can be an effective way to avoid probate, but it is not for everyone.  Of course, this article is for informational purposes only, and is not intended as legal advice.  You should not act or refrain from acting based on this article.  Consult with an attorney of your choosing before deciding whether a Transfer on Death Deed is right for you.

I’m Ed, and I’m just sayin’…

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Posted by: edburdzinski on October 16, 2016