A Transfer on Death Deed is a deed designed to allow an individual to pass real estate to another individual upon the death of the property owner. It is authorized by Chapter 114 of the Texas Estates Code. (These deeds are referred to as a Deed on Death, a TODD or TODD Deed.)
The Deed on Death states that a property owner conveys a specific piece of real estate to another named individual effective immediately upon the death of the property owner.
EXAMPLE: A husband desires that his interest in the family home transfer immediately to his wife upon his death. He executes and files a TODD deed. Years later when he passes, the property is automatically transferred to his wife.
The main benefit of a Transfer on Death Deed is that the property owner can automatically pass a piece of property upon the owner’s death without the property being subject to probate proceedings. This can be helpful in avoiding probate all together if the owner has no other assets which require probate to transfer. It can also result in an immediate transfer, whereas an individual may have to wait for the transfer of property passed through probate. Use of such deeds can also ensure that the property is passed to a particular person or persons.
The flexibility of the TODD Deed is the fact that it is revocable. The owner can revoke the Transfer on Death Deed at any time so long as the revocation is filed in proper format in the proper county deed records prior to the owner’s passing.
A person executing a Deed on Death also retains the right to sell the property at any time without the knowledge or consent of the person named in the TODD Deed. In effect, the deed is a conditional transfer, providing that the property passes to the named beneficiary only if the property owner still owns the property at the time of death. Transfer of the property prior to death serves as an automatic revocation of the TODD deed.
The property owner can also use the property as security on a loan, such as a home improvement loan or a mortgage.
A Transfer on Death Deed is a legal document which should only be drafted by an attorney. Unexpected and unintended consequences can occur if prepared by anyone that is not knowledgeable in the law related to this type of deed.
A Transfer on Death Deed differs from a Life Estate with a Remainder Interest. A Life Estate with a Remainder Interest is used to transfer property to another person for the life of that person. Upon their death, the property is then transferred to the remainderman. This is a different type of deed from a TODD deed. This deed will restrict the ability of the holder of the Life Estate to sell and mortgage the property. Likewise, it is not freely revocable.
There can be many issues and implications resulting from the execution of a TODD deed. They cannot all be anticipated or outlined in a general article. Some of possible issues include:
- The deed does not convey any interest in the property to any other person prior to death of the owner. Likewise, it does not create any interest in the property in favor of any other person prior to death of the owner. The owner can still sell or convey the property, to any other person, at any time prior to the property owner’s passing. Such a conveyance would serve as a revocation of the Transfer on Death Deed.
- There can be alternate beneficiaries named in the deed in the event that the primary beneficiary passes prior to the person executing the Transfer on Death Deed.
- The transferred property passes subject to all of the debt secured by the property. For example, if a loan was obtained to purchase the property, and the loan is secured by the property, the person to whom the property passes is liable to continue paying on the debt. Failure to do so can result in foreclosure on the property.
- A Transfer on Death Deed will control over a bequest in the owner’s Will of the same property to another person This is the case even if the owner’s Will is written after the date of the Transfer on Death Deed. In the event the property owner wishes for property to pass by the terms of the will, the owner must revoke the Transfer on Death Deed.
- If the property is held with a right of survivorship, the right of survivorship provisions will control over the Transfer on Death Deed. This means property will pass to the other survivors and not to the person named Transfer on Death Deed. For example, three brothers own a piece of property with right of survivorship to each other. One executes a Transfer on Death Deed for this property to his wife and then passes away. The property interest of the deceased brother will pass to the brothers under the right of survivorship, and not to the wife named in the Transfer on Death Deed.
- If a spouse is a beneficiary of a Transfer on Death Deed, and a divorce is obtained after filing of the Transfer on Death Deed, the Transfer on Death Deed will still be valid until a revocation, or notice of the judgment, is recorded with the deed records. Such a document must be recorded prior to the death of the person executing the deed.
- The property subject to a Transfer on Death Deed can be used to pay debt of the property owner’s estate in the event that there are insufficient assets in the estate to pay the estate’s debts. For example, a property owner passes away owning a $200,000 piece of property and owing $20,000 in credit card debt. Prior to death, the property owner executed and filed a valid Transfer on Death Deed for the property. Assuming that the other assets of the estate are negligible and insufficient to pay the credit card debt, the property which would pass pursuant to the Transfer on Death Deed could be used by the estate and creditors to pay the credit card debt.
- There is a two-year limitation period for enforcing debts of the estate against property passing by way of a transfer on death. For this reason, some title companies may be hesitant to issue a title policy on property conveyed by a Transfer on Death Deed until after the two-year lapse.
- The Transfer on Death Deed does not carry any of the warranties provided by general warranty deed.
Thank you for your interest in these articles. Please remember that these articles are designed to provide general legal information and may not apply to specific legal situations. Legal matters can be complicated by issues outside of the scope of our articles. Publishing these articles does not constitute legal advice on the part of Davis McCown, Attorney at Law. Neither review of any article, nor use of the information provided, constitutes an attorney/client relationship. It is recommended that all estate planning documents, real estate documents, and related decisions be discussed with a qualified attorney