As of September 1, 2015, owners of real property in Texas gained access to the statutory transfer on death deed (TODD). Modeled after the Uniform Real Property Transfer on Death Act and located at Chapter 14 of the Texas Estates Code, the Texas Real Property Transfer on Death Act governs the use of transfer on death deeds in the State of Texas.
IMPORTANT: TRANSFER ON DEATH DEEDS AND ASSOCIATED REVOCATIONS MUST BE RECORDED WHILE THE OWNER IS ALIVE OR THEY HAVE NO EFFECT.
Previously, Texas land owners seeking a simple, relatively inexpensive way to transfer property rights after their deaths used instruments called Ladybird deeds. More formally known as enhanced life estate deeds, these documents allow the owners to record a deed transferring title to one or more beneficiaries, but retaining a life estate with specific language giving the owners the power to sell, transfer, revoke, or otherwise use the property as they wish, without consent from the beneficiaries. This is possible because the beneficiaries do not gain a present interest in the property while the owner is alive. As long as the deed is lawfully recorded during the owner’s lifetime, the title transfers to the beneficiary when the owner dies, but without the need for probate because the transfer happens independently of a will.
Ladybird deeds have been in use since the 1980s, but they were never directly authorized by Texas law. In the years since their introduction, a number of other states began accepting similar instruments, and many of them codified the process by entering them into the state statutes. This gave all parties under those laws greater protection by defining the rules, content, and restrictions associated with non-probate transfers. Now Texas is extending that same protection to its land owners with the Texas Real Property Transfer on Death Act.
Transfer on death deeds are non-testamentary instruments, meaning that the transfer from a TODD is separate from the owner’s will (if any). As with Ladybird deeds, TODDs allow transferors/owners to retain absolute ownership of and control over their land during their lives – they may sell, mortgage, rent, or otherwise use the real estate as they desire, with no penalty for waste or obligation to notify the beneficiaries (114.101).
To be lawfully executed, a transfer on death deed must fulfill three minimum requirements, set out in 114.055:
1) Meet all state and local standards for recordable deeds, including appropriate content and format.
2) State that the transfer will take place at the owner’s death.
3) Be recorded, during the owner’s natural lifetime, in the deed records in the county clerk’s office for the county where the property is located.
By recording the executed TODD, property owners may also take advantage of one of the most unique aspects of these instruments: revocability (114.052). The statute provides several methods for revoking a TODD. The owner may execute and record a new TODD, effectively cancelling the prior deed and designating a different beneficiary. The owner may also sell the real estate to someone else using a standard inter vivos conveyance such as a warranty deed or a quitclaim deed that contains a comment revoking the TODD. A third option uses a revocation form, which, after recording, cancels all previously recorded TODDs (114.057).
Transfer on death deeds convey title with no warranties, and subject to all agreements, encumbrances, and other interests in place at the time of the owner’s death (114.104(a)). Two or more beneficiaries take ownership in equal and undivided shares with no right of survivorship (114.103(a)(3)).
In much the same way that owners may wish to change or revoke a beneficiary designation, sometimes beneficiaries are unable or unwilling to accept the property after the owner dies. To address this need, they may disclaim all or part of the interest in land (114.105).
Under 114.057(b), the recorded TODD is not affected by information contained within the owner’s will. Even so, best practices dictate that an efficient estate plan does not contain conflicting directions, so make sure that the documents work together to reinforce the owner’s intent.
Overall, transfer on death deeds provide a useful, flexible estate planning tool to owners of real property in Texas. Before committing to a TODD, consider its potential effect on the comprehensive estate plan as well as eligibility for income-and/or-asset-based benefits. Each case is unique, so for complex situations or additional questions, contact a local attorney.