Texas is one of a growing number of states that allow owners of real estate to transfer property to their beneficiaries outside the probate process by creating a Texas Transfer on Death Deed.
The deed works like a beneficiary designation on a retirement plan or an insurance policy. It allows you to name a primary and contingent beneficiary who will inherit your real estate after you die, without having to go trhough probate.
This is good news for many Texans with modest estates whose primary probate asset is their home.
Below are a few things you should now about the Texas Transfer on Death Deed.
What are the Requirements of a Valid Texas Transfer on Death Deed?
To be valid, a Transfer on Death Deed must meet the following requirements:
- Written Document: The deed must be in writing and legally describe the property.
- Beneficiaries Named: The deed must include the name and addresses of the designated beneficiary or beneficiaries.
- Signature and Notarization: The property owner (Grantor) must sign the deed in front of a notary public.
- Recorded: The deed must be recorded in the county clerk’s office before the property owner’s death.
Is Delivery and Acceptance of the Deed Required?
No. Neither notice nor acceptance of the deed by the designated beneficiary is required. As long as the deed is recorded in the county clerk’s office before the Grantor’s death, it will be effective to transfer property outside of probate.
Is it Possible to Name More Than One Beneficiary?
Yes. It is possible to name more than one beneficiary, but you should proceed with caution.
If you name more than one beneficiary, Section 114.103 of the Texas Estates Code provides that each beneficiary will inherit the property in equal and undivided shares with no right of survivorship.
In plain English, this means that you may not leave varying percentages to several individuals. All will inherit an equal share of the property. For example, if you name two beneficiaries, each would inherit a 50% share. If you name four beneficiaries, each would inherit a 25% share. You can’t give one beneficiary a 50% share and two other beneficiaries a 25% share.
Should a Spouse be Named as Primary Beneficiary of Jointly Owned Property?
The answer to this question depends on whether you own your property as tenants in common or joint tenants with rights of survivorship.
Most couples who own property jointly in Texas own the property as tenants in common. If a couple owns the property as tenants in common and one of them dies, the survivor will not automatically inherit the property. Rather, it would be necessary to name each spouse as the primary beneficiary for the deceased spouse’s interest to pass to the survivor.
Can You Revoke a Texas Transfer on Death Deed?
Yes. A Transfer on Death Deed is completely revocable during the life of the Grantor. A grantor can revoke a Transfer on Death Deed in one of the following ways:
- By signing a new Transfer on Death Deed that revokes the prior one or specifies that the property should pass to someone else;
- By signing a separate document that expressly revokes the prior Transfer on Death Deed. Note, however, a Grantor cannot revoke a Transfer on Death Deed by making a contrary provision in a Will.
The Grantor must sign the revocation in front of a notary and record it before the Grantor’s death in the deed records of the county clerk’s office of the county where the property is located.
If a Grantor names a spouse as the beneficiary of a Transfer on Death Deed and the marriage ends in divorce, the Grantor or another party must record notice of the final court judgment dissolving the marriage in the county clerk’s deed records before the Grantor’s death to revoke the transfer on death deed for the divorced spouse.
Can Transfer of Death Deed be Created Though Use of Power of Attorney?
No, a power of attorney cannot be used to create a Texas Transfer on Death Deed. The deed must be executed by the property owner (grantor) personally.
How Does a Transfer of Death Deed Become Effective After the Owner’s Death?
After the Grantor dies, an affidavit of death and a certified copy of the Grantor’s death certificate should be filed in the county clerk’s office of the county where the deed was recorded. This creates a link in the chain of title to show that the beneficiary is now the owner of the property.
The beneficiary takes title subject to all mortgages, liens, judgments, and other encumbrances. The beneficiary does not take the property free and clear.
Does a Transfer on Death Deed Prevent Medicaid Estate Recovery?
Yes. Currently, the Medicaid Estate Recovery Program (MERP) can only recover assets included in the deceased individual’s probate estate. A home that is part of a deceased person’s probate estate can be subject to MERP. Because the Texas Transfer on Death deed allows property to pass outside of probate, it also avoids Medicaid estate recovery.
Potential Drawbacks of a Texas Transfer on Death Deed
Texas recognizes that the use of Transfer on Death Deeds can impact the ability of a decedent’s creditors to recover owned debts. Therefore, if the grantor’s estate does not have enough assets to cover debts, taxes, or allowances to the family, the personal representative of the estate has the right to “claw back” any property transferred via a TODD back into the estate.
The personal representative must initiate a proceeding to enforce a liability within 90 days of receiving a payment demand. If they fail to do so, creditors, heirs, surviving spouses, representatives of minor or incapacitated children, or taxing authorities can initiate a court proceeding. This means that title companies may be reluctant to insure clear title for two years, until the claims period has expired, absent a court proceeding. In contrast, filing a probate action can significantly reduce claims period against the estate.
Is a Will Still Necessary if You Have a Texas Transfer on Death Deed?
Yes. Everyone needs a Will because you may have probate assets other than your real property. Additionally, there is always a possibility that your Transfer on Death Deed beneficiaries will predecease you or die at the same time.
For example, suppose Jill has two adult children, Jack and Annie. Jill creates a Transfer on Death Deed naming Jack as the primary beneficiary of a piece of property and Annie as the alternate beneficiary.
One holiday weekend, Jill, Jack and Annie decide to go to the beach together. On the way there, a tragic accident kills all of them. If Jill dies without a Will, and her beneficiaries die with her, the Texas Intestacy Statutes would control who inherits the property. A Will would have allowed her to choose the beneficiary.
Is a Texas Transfer on Death Deed Right for Your?
A Transfer on Death deed can be a cost-effective way to transfer property at death without probate. However, it is not a substitute for a valid Texas Will or the advice of an attorney.
An experienced Texas estate planning attorney can answer any questions you have about whether a Texas Transfer on Death Deed is right for you.
