When a person has a will, that person’s property will pass through probate upon his/her death. There are certain estate planning tools, however, which allow individuals to bypass the probate process. The transfer on death deed is one such tool.
A transfer on death deed (“TODD”) is a deed for real property which becomes effective at the death of the transferor (the person making the transfer). Some of the primary advantages of using a TODD are: 1) the transferred property avoids the probate process with regard to the transferred property and allows for the title to the transferred property to be vested in the transferee immediately upon death; and 2) it allows for the transfer of the real property while the transferor is alive but permits the transferor to mortgage the property; use the property; or even sell the property after the transfer was made. So, the TODD is very flexible.
Transfer on Death Deeds in General
To be effective, a TODD must:
(1) contain the essential elements of a recordable deed,
(2) state that the transfer of an interest in real property to the designated beneficiary is to occur at the transferor’s death, and
(3) be recorded before the transferor’s death in the deed records in the county clerk’s office of the county where the real property is located.
Texas Estates Code § 114.055.
TODDs are effective regardless of whether the beneficiary of the deed has notice of the deed, or whether the deed has been delivered to or accepted by the beneficiary. If he so chooses, a designated beneficiary may disclaim all or part of the interest deeded to him. Usually, a disclaimer will be made in order to keep the property out of the hands of the beneficiary’s creditors.
When a property owner has executed a TODD for a particular piece of property, he retains the right to sell or encumber the property in his lifetime, without regard for beneficiaries of the deed. This is because a TODD does not create any property interest in its designated beneficiaries until the transferor passes away. The deed also does not affect the transferor’s homestead rights in the property. Furthermore, property tax exemptions for the property remain unaffected by the deed—including exemptions for residence homestead, persons 65 years of age or older, persons with disabilities, and veterans.
The property owner may revoke the TODD at any time and does not need a reason for doing so. Revocation must be done in a signed writing and recorded in the same county as the transfer on death deed was recorded in. A revocation cannot be made in a will.
Transfer on Death Deeds and Property Jointly Owned
In Texas as elsewhere, a single property may be owned by more than one person. Occasionally, co-owned property is owned with “right of survivorship,” meaning that when one of the co-owners dies, his interest passes to the surviving co-owner or co-owners instead of his heirs or will beneficiaries. If a transferor of a TODD is a joint owner with right of survivorship and he is survived by another joint owner, the TODD will be disregarded and the property will pass to the surviving joint owner or owners. If, however, the transferor is the last surviving joint owner, the TODD is effective. Moreover, if a TODD is made by two or more transferors who are joint owners with right of survivorship, the deed can be revoked only if it is revoked by all living joint owners. When only one joint owner remains alive, that owner can revoke the TODD by himself.
Liens, Encumbrances, and Creditor Claims against a Property Deeded with a Transfer on Death Deed
While the TODD avoids probate with regard to the property, it does not erase a property’s encumbrances. When the transferor dies, the beneficiary takes the deeded property subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests existing at the time of the transferor’s death. If the property has been used to secure payment to a creditor, the creditor may enforce his rights against the property at the transferor’s death.
Furthermore, the transfer of a property may be reversed if the transferor’s estate is insufficient to satisfy any claims against the estate, expenses of administration, estate tax owed by the estate, or an allowance in lieu of exempt property or family allowance to a surviving spouse, minor children, or incapacitated adult children. When any of these circumstances arise, the personal representative of the estate may enforce the estate’s liability against the transferred property to the same extent the personal representative could enforce that liability if the real property were part of the probate estate.
Transfer on Death Deeds and the Medicaid Estate Recovery Program
If an individual has received long-term Medicaid services, the state of Texas might ask for money back from the individual’s estate after he or she dies. The process of recovering Medicaid costs from an individual’s estate is initiated by Texas Health and Human Services’ Medicaid Estate Recovery Program (“MERP”), and the process occurs when an estate goes to probate. The TODD is a useful estate planning tool in this situation because it keeps the deeded property out of probate, and therefore, out of MERP’s reach. Because property transferred by a TODD goes directly to its beneficiaries upon the transferor’s death, the TODD can be a good option for recipients of long-term Medicaid services.
Legislative update: 2017
In 2017, the Texas legislature changed the language used in its TODD forms. If your TODD was written prior to the change, check Texas Estates Code 114.151 or ask an attorney to be sure the language in your deed is consistent with the language recommended by the legislature.
The Takeaway: A TODD is a useful way to keep your property out of probate and away from Texas Medicaid’s “estate recovery” program. The wording in Texas TODD was recently changed by the Texas legislature, so be sure the language in your deed is consistent with that change.
– The Business Team
Scott | Josh | Jeremy
The Allen Firm, PC
181 S. Graham Street | Stephenville, Texas 76401
Ph: 254.965.3185 | Fax: 254.965.6539
The Allen Firm, PC is composed of a team of attorneys located in Stephenville, Texas. Our mission is to improve people’s lives by providing reliable and practical help with their legal matters while operating under our values of honoring people, operating with integrity and striving for excellence. We offer help in forming businesses or companies, estate planning, lawsuits, real estate, probate, oil and gas, collections, agriculture, bankruptcy, family law, and accident and injuries.
*This article has been written and provided for educational purposes in an attempt to provide the reader with a general understanding of the particular topic and area of law covered in this Article. It is not to be relied upon for any purpose. The reader acknowledges the underlying analysis and legal conclusions referenced in this Article may be inaccurate by the changing of the law or by a controlling court opinion to the contrary. No attorney-client relationship exists until an appropriate engagement letter has been signed. Contact our Firm to discuss how the contents of this Article may apply to your specific situation.
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