Transfer on Death Deeds
In 2015, the Texas Legislature created a vital new estate planning tool, namely, the Transfer on Death Deed. The Transfer on Death Deed will serve an important role in future estate planning needs by lessening, and sometimes removing, the burden of probate. The Transfer on Death Deed is similar to an Enhanced Life Estate Deed, which is sometimes called a Lady Bird Deed.
So, exactly what is a transfer on death deed? A transfer on death deed is an instrument that transfers interest in real property from the transferor to beneficiaries named within the deed upon the death of the transferor. However, the transfer on death deed is not considered a testamentary instrument, which means that the real property being transferred avoids probate. The transfer on death deed is also revocable, which means that it can be revoked or changed at any time.
To be effective, the transfer on death deed must meet most all the ordinary requirements of a deed and contain a statement that the real property will transfer to the named beneficiaries upon the transferors death. One of the differences between an ordinary deed and the transfer on death deed is the fact that no consideration is required for the transfer on death deed. Further, a transfer on death deed must be filed prior to the death of the transferor. A transfer on death deed cannot be created through a power of attorney.
Many people have questions about whether a last will and testament executed subsequent to the transfer on death deed revokes the deed. It does not. However, if the transferor and a beneficiary get divorced after the execution of a transfer on death deed, then the deed is automatically revoked. Additionally a transfer on death deed should receive the preferred step-up in basis for tax purposes.
During the life of the transferor, a transfer on death deed does very little in regards to the relationship with third parties. The transferor retains full authority to sell the property, mortgage the property, refinance the property, lease the property, or do any other legal act regarding the property. The transferor will maintain his homestead exemption from creditors and for taxes. To the extent that the real property is not a homestead, creditors can still access it as part of the transferors property and decedents estate. And, the filing of a transfer on death deed does not violate the due on sale or due on transfer clause in a deed of trust.
To receive the real property subject to a transfer on death deed, a beneficiary must survive the beneficiary by 120-hours (5-days) and file a death certificate with the clerk of the county in which the real property is located. If a beneficiary fails to survive the transferor by 120-hours, then the gift lapses. However, the transferor may name alternative beneficiaries in the transfer on death deed. If there is no other named beneficiary, then the real property lapses back into the estate of the transferor and must be probated in accordance with the decedents will. Also, one should remember that when multiple beneficiaries are named, then the beneficiaries must share an equal undivided interest in the real property.
It is important to note that a transfer on death deed does not replace a last will and testament. However, it does make probate a measure of last resort. For a real world example of the importance of a transfer on death deed, imagine a married husband and wife. The husband, as usual, predeceases the wife. The wife then desires to sell the house. However, she must either file an Application to Probate Will as Muniment of Title or an Affidavit of Heirship. With a transfer on death deed, the wife could just file a death certificate and continue to sell the property.
If you have any questions about transfer on death deeds, you should contact a local estate planning attorney.
Robert Newton is an attorney based in Frisco, Texas, that practices estate planning, real estate law, and business law. This post is meant for informational purposes only and does not constitute legal advice.