Effective September 1, 2015, Texas enacted the Texas Real Property Transfer on Death Act that can be found in the Texas Estates Code Chapter 114. This Act serves to allow real estate to pass through a Transfer on Death Deed (hereinafter TODD). These types of deeds were previously authorized under Estates Code 111.052. The Act will only apply to TODDs that are executed and acknowledged on or after September 1, 2015.
To be effective, a TODD must contain the essential elements and formalities of a recordable deed in Texas. This requires that it be in writing, sufficiently describe the property, and be signed by the Grantor in the presence of a Notary Public. The Grantor must have contractual capacity in order to execute a TODD, and the instrument must also include an express statement that the transfer is to occur at the grantor’s death. It must then be properly recorded before the Grantor’s death in the county where the real property is located. The statute specifically states that no notice, delivery nor acceptance of the deed by the beneficiary is required.
The statute allows for more than one beneficiary to be named, with the stipulation that the beneficiaries will receive equal and undivided shares with no right of survivorship. This means that you may not leave varying percentages to several individuals. If multiple parties are named beneficiaries and one of them predeceases the Grantor, the deceased beneficiary’s share will not pass to the other surviving beneficiaries. Thus, it would be prudent to have a will specifying what should happen to the property if the beneficiary or beneficiaries listed on the Transfer on Death Deed are not living.
While the Grantor is alive, the beneficiary receives no interest in the property subject to the TODD. Upon the death of the grantor, the property subject to the TODD vests in the beneficiary so long as the beneficiary survives the grantor by 120 hours. After the Grantor dies, 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. Filing the death certificate in the property records serves as a link in the chain of title to show has been transferred to the beneficiary.
Title is transferred to the beneficiary subject to all mortgages, liens, judgments, and other encumbrances. The beneficiary does not take the property free and clear.
The grantor may revoke a TODD at any time and for any or no reason. A TODD cannot be made to be irrevocable, and any language that suggests that it be irrevocable is ineffective 114.052. A TODD can be revoked by a new TODD that expressly revokes a prior TODD, a new TODD that grants the property to a new beneficiary, or an instrument that revokes the TODD without naming a replacement beneficiary. The revocation must be signed and notarized by the Grantor and recorded before the Grantor’s death in the deed records of the county clerk’s office of the county were the deed being revoked is recorded.
Additionally, if a Grantor names his spouse as the beneficiary of a TODD and then is later divorced, a final judgment of the court dissolving the marriage will operate to revoke the transfer on death deed as to the divorced spouse so long as the divorce is recorded before the grantor’s death and in the same office where the TODD was filed.
Texas recognizes that the use of Transfer on Death Deeds may affect the ability of the decedent’s creditors to recover what is owed to them. Therefore, the Texas TODD statute specifies that to the extent a Grantor’s estate is not sufficient to the pay the debts of the estate, related taxes, or allowances to the Grantor’s family, the personal representative of the estate can enforce liability against the real property that was transferred by a Transfer on Death Deed as if it were part of the probate estate.
The personal representative must initiate a proceeding to enforce a liability within 90 days after he receives a demand for payment; otherwise, a creditor, an heir of the estate, a surviving spouse, a representative of a minor child or adult incapacitated child, or any taxing authority can initiate a court proceeding to enforce the liability. This means that title to the property could potentially be unsettled until the claims period has expired.
Medicaid Qualifications and Recovery
A TODD likely will not have an impact on the grantor’s ability to qualify for Medicaid because the TODD does not affect the grantor’s interest while alive. Under current Texas law, the Medicaid Estate Recovery Program reaches only the deceased Medicaid recipient’s probate estate to recover Medicaid payments. Because the property is not party of the probate estate, it is currently unreachable for Medicaid recovery. However, federal law allows for a state to pursue non-probate assets, and it is possible Texas may revise its policy on the Medicaid Estate Recovery Program to allow recovery of non-probate assets. This is something to watch for in upcoming Texas Legislation.
A Transfer on Death deed can be a cost-effective way to transfer property at death without the need for probate. However, it is not a substitute for a Will or the advice of an attorney. Contact PP&T today to discuss whether a Transfer on Death Deed is right for you.