A Transfer-On-Death-Deed is a special type of deed form that transfers property to designated beneficiaries upon an owner’s death. A Transfer-On-Death Deed allows the owner to name both primary and continent beneficiaries. It works much like a Transfer-On-Death designation on a bank account.
Like Lady Bird Deeds and traditional Life Estate Deeds, Transfer-On-Death Deeds are often used to avoid probate and protect assets from Medicaid recovery. But Transfer-On-Death Deeds—also called TOD Deeds—are a recent addition to Texas law. They were not authorized by Texas statutes until September 1, 2015. Effective on that date, Section 114.051 now provides:
TRANSFER ON DEATH DEED AUTHORIZED. An individual may transfer the individual’s interest in real property to one or more beneficiaries effective at the transferor’s death by a transfer on death deed.
This provides clear statutory authority for Texas transfer on death deeds. The statute also resolves a number of common questions around Texas Transfer-On-Death-Deeds.
What is Required for a Texas TOD Deed to Become Effective?
To be effective, a Texas transfer on death deed must include the essential elements and formalities of other types of Texas deeds. This means, for example, that the deed must be written, contain a clear legal description of the property, and be properly signed and notarized. The deed must also state that the transfer of the interest in real estate will occur at the owner/transferor’s death. Finally, the deed must 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.
Must I Record a Texas TOD Deed?
Yes. One common—but legally inadvisable—strategy is to create a “pocket deed” that is not recorded in the land records until after the owner’s death. The idea is to create the benefits of a life estate deed, but allow the owner to change his or her mind by destroying the deed. There are many problems associated with this strategy, but the Texas statutes make it clear that it will not work for Texas TOD Deeds. In order for a Texas TOD Deed to be effective, it must be recorded before the transferor’s death.
If I Create a Texas TOD Deed, Can I Sell the Property at a Later Time?
Yes. If you make a Texas TOD Deed and later decide to sell the property, the Texas TOD Deed will be disregarded. Texas law is clear that an otherwise valid TOD Deed becomes void as to any interest in the property that you convey during your lifetime, as long as:
- a deed or other valid instrument conveying the property is recorded in the deed records in the county clerk’s office of the same county in which the transfer on death deed is recorded; and
- the recording of the instrument occurs your death.
Can I Leave Property to Multiple Beneficiaries?
Yes, you can leave property to multiple beneficiaries, as long as each beneficiary inherits an equal interest in the property. This provides flexibility for common family situations. In a common scenario, for example, you could name your spouse as a primary beneficiary and children as alternate beneficiaries. If your spouse outlives you, he or she would own the entire property. But if your spouse predeceases you, your children would own the property in equal shares as tenants in common.
Must I Notify the Beneficiary of the Texas TOD Deed?
No, there is no need to notify the primary or alternate beneficiaries named in the Texas TOD Deed. A transfer on death deed is effective without notice or delivery to or acceptance by the designated beneficiary during the transferor’s life.
Must I Receive Anything in Return for the Texas TOD Deed?
No. This question gets at the common law requirement of consideration for deeds. This is not a requirement for Texas TOD Deeds. A transfer on death deed is effective without consideration.
Is a Texas TOD Deed Revocable?
Yes, a transfer on death deed is revocable. This is true regardless of whether the deed or another instrument contains a contrary provision. This is an important feature that distinguishes Texas TOD Deeds from traditional life estate deeds, which usually cannot be changed without the involvement of the remainder beneficiary. Texas TOD Deeds, by contrast, can be unilaterally revoked by the owner without involving the remainder beneficiaries.
Since a Texas TOD Deed Becomes Effective at Death, is it a Testamentary Instrument?
No, a Texas TOD Deed is not a testamentary instrument like a Texas Last Will and Testament. This has two important consequences:
- A Texas TOD Deed does not need to comply with the “testamentary formality” requirements or mental capacity requirements associated with Texas wills. As long as the TOD Deed meets the requirements of the TOD statute, it will be recognized.
- Property conveyed by Texas TOD Deed does not need to pass through the probate process. When the owner dies, the property becomes vested in the beneficiaries named in the deed without the need for Texas probate.
Can a Texas TOD Deed Be Created with a Power of Attorney?
No, a Transfer-On-Death-Deed may not be created using a power of attorney. Powers of attorney often involve the risk of self-dealing, especially when used to directly or indirectly benefit the agent named in the power of attorney. The Texas legislature preemptively resolved these types of issues by clearly provided that Texas TOD Deeds may only be created by a person with mental capacity, not by his or her agent under a power of attorney.
How Does a Texas TOD Deed Relate to My Last Will and Testament?
The Texas TOD Deed will trump your will. Texas law is clear that a will may not revoke or supersede a transfer on death deed. If you sign a Texas TOD Deed naming one or more beneficiaries and name someone else to receive the property under your will, the property will pass to the beneficiaries named in the TOD Deed, not to the beneficiaries named in the will.
How Does a Texas TOD Deed Work When Property is Jointly Owned with Rights of Survivorship?
It is common for Texas property owners to hold title jointly with another owner with rights of survivorship. This allows the property to pass automatically to the surviving owner upon the death of the first owner to die. But what if the two owners want to name someone else to receive the property after both of them die? Can a Transfer-On-Death Deed be used for that?
The answer is “yes,” but with a few caveats. Section 114.103(b) of the Texas Estates Code provides:
If a transferor is a joint owner with right of survivorship who is survived by one or more other joint owners, the real property that is the subject of the transfer on death deed belongs to the surviving joint owner or owners. If a transferor is a joint owner with right of survivorship who is the last surviving joint owner, the transfer on death deed is effective.
This means that as long as one of the owners survives, the property will pass to that owner and not to the beneficiaries named on the deed. But when both owners die (i.e., when there is no remaining owner with right of survivorship), the property will pass to the beneficiaries named on the deed.
Example: Don and Melania own Texas property as joint tenants with right of survivorship. Don would like the property to pass to Melania on his death, then to Baron on Melania’s death. Don and Melania could create a Texas Transfer-On-Death Deed that names Baron as a beneficiary. If Don dies and is survived by Melania, the property will pass to Melania. When Melania (the last surviving joint owner) dies, the property will pass to Baron.
Here’s the caveat: This puts Melania in a position to change the transfer after Don’s death. Under Section 114.013(c) of the Texas Estates Code:
If a transfer on death deed is made by two or more transferors who are joint owners with right of survivorship, the last surviving joint owner may revoke the transfer on death deed ….
This means that, after the death of one owner, the surviving owner can revoke the deed and name a new beneficiary. If the joint owners have the same objectives, this is not usually a problem. For example, a married couple on their first marriage will usually want to leave property to their children from the marriage. Because their goals are aligned, there is less risk that the widow or widower will disinherit the children after the first spouse’s death.
The risk increases, however, if the goals of the joint owners are not the same. In a second marriage, for example, each spouse may want to leave property to his or her own children instead of the other spouse’s children. In that situation, there is a possibility that the surviving spouse will revoke the deed after the first spouse’s death and leave the property to his or her children instead of the deceased spouse’s children.