You can’t wander far into the Texas estate planning forest without coming across a Transfer on Death Deed. So, what is that and why on earth would you ever want one?
What is a Transfer on Death Deed?
We’ll use an easy example. Suppose you are single and own a house that is your homestead. You want to leave the house to your nephew when you die in the simplest manner possible.
One way to make this happen is to sign a special type of deed that directs that your house will pass to your nephew when you die. You retain all the rights in the property during your lifetime, and you can revoke the deed whenever you want.
That type of deed is known as a Transfer on Death Deed or TOD Deed. The benefit of a TOD Deed is that your house does not go through probate when you die. Your nephew simply files an affidavit of your death in the deed records in the county where the house is located to give notice that the title has passed to him.
The History of TOD Deed
The TOD Deed sprang into being in 2015 when Texas enacted Chapter 114 of the Texas Estates Code. That makes it a relatively new statute. The original statute contained a sample form, but when too many people found the form to be confusing, that portion of the statute was repealed.
Establishing a Transfer on Death Deed
There are a lot of technical steps you must follow for the TODD to be effective.
Must Be in Writing
The TOD Deed must be in writing, you must sign it, and your signature must be notarized. A TOD Deed signed by your agent under a power of attorney is not effective.
Your nephew does not have to be notified about the Transfer on Death Deed and does not have to accept it during your lifetime for it to be effective.
Must Be During Your Lifetime
The TOD Deed MUST be recorded during your lifetime in the deed records of the county where your house is located.
After you record the TOD Deed, you retain all ownership rights to the property (your house). You can mortgage it, convey it, improve it, or lease it. You are not restricted at all.
What the Transfer on Death Deed Means While You’re Alive
The Property is Yours and Yours Alone
Your nephew has no right to the property during your lifetime. During your lifetime, he cannot sell the property or borrow money against it. He does not have a right to live on your property or enter it without your permission. He does not have a legal or equitable interest in the property. He does not become the owner of the property until you die.
You Can Change Your Mind
You can revoke the TOD Deed at any time.
The TOD Deed is the Final Word
The TOD Deed overrides any contrary provision in your will. Suppose you forget that you have a recorded TOD Deed and later execute a will that leaves the property to your niece. When you die, your nephew will get the property through the TOD Deed, and your niece will get nothing.
The Disadvantages of a Transfer on Death Deed
A TOD Deed comes with some disadvantages. If there is a mortgage on your property, then the mortgage passes to your nephew along with the property. Your death should not trigger a due-on-sale clause on the property.
There is also the dreaded “clawback” provision. TOD-Deeded property can be brought back into your estate for two years after your death to pay certain creditors. For that reason, some title companies are wary of insuring titles during those two years.
Hammerle Finley Law Firm is Here to Help with TODD
For all its simplicity, a TOD Deed can have lots of complications. Visit with an estate planning attorney before you decide to use it like the experts at Hammerle Finley Law Firm. Schedule a consultation today for assistance navigating a Transfer on Death Deed.
Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship, and contested litigation. She may be reached at legaltalktexas@hammerle.com. This blog contains general information only and does not constitute legal advice.
