Can Transfer On Death Deeds Be Fatal? 12 Problems With Transfer On Death Deeds

Can Transfer On Death Deeds Be Fatal? 12 Problems With Transfer On Death Deeds

Transfer on Death Deeds (TODDs) are a simple tool to pass real estate after your death to avoid probate or an heirship determination. You can change your mind and cancel the deed. You can even name contingent beneficiaries. TODDs have no adverse tax consequences, do not trigger a due-on-sale clause in a mortgage or deed of trust (where a lender can call a note if there is a transfer of property without the lender’s consent) and even (in Texas) avoid a successful claim by the state against a homestead for Medicaid estate recovery for Medicaid benefits advanced (i.e., nursing home and drug costs, etc.). As a result, sometimes TODDs are a good option for the transfer of real estate – but there are problems that should be considered as follows:

  1. Can’t Use Power of Attorney to Sign TODD

Unlike other life estate deeds (such as a Ladybird deed), an agent under a power of attorney cannot sign on behalf of the person who owns the property. So, even if you are married and your spouse lacks mental capacity and you are named as an agent on your spouse’s power of attorney, you cannot sign the TODD on behalf of your spouse.

  1. No Warranty of Title

Unlike other life estate deeds (such as an enhanced life estate “Ladybird” deed) which are often general warranty deeds insuring good title from title defects, TODDs give no warranty of title.

  1. Must be Recorded Before Death

A TODD must be recorded in the county where the property is located before the owner of the property dies.

  1. Beneficiary Must Survive by 120 Hours

A beneficiary of a TODD must survive the property owner by 120 hours or the property is treated as if there were no TODD.

  1. Creditors Could Force Probate Within Two Years After Death

The Texas law allows creditors to force probate to get paid back if an action is taken within two years after the death of the property owner. If there is no Will the legal costs for settling could even be larger – not to mention the time delay (even if there is a TODD).

  1. Title Companies May Not Insure for Two Years

Due to the creditor rights mentioned in 5 above, title companies may not insure good title to the property until two years after the death of the property owner. As a result, the beneficiary of the TODD might not be able to sell or refinance the property and runs the risk of foreclosure if the beneficiary can’t pay the debts during that two years.

  1. Will Signed After TODD Could Lead to Confusion

Although a TODD supersedes a Will as to transfer of real estate, this could lead to confusion and possible litigation. The subsequent Will should probably mention the TODD and that it trumps the Will (although most probably do not have a Will if they have a TODD).

  1. Divorce Does Not Automatically Void Spousal Beneficiary Designation

Unlike other spousal beneficiary designations (i.e., if a spouse is named as a beneficiary of a Will, the divorced surviving spouse is disinherited as a matter of law unless a new Will was done after divorce naming the spouse as a beneficiary), the divorce decree must be recorded before the death of the property owner for the TODD to be effective.

  1. No Reference to Community Property

The law is silent as to community property.

  1. Laws Vary by State

Most states have TODD laws – but the laws vary by state.

  1. Can’t Name Class of Children

The owner of the property can’t name a class of beneficiaries (i.e., children – so instead you would name each child desired as a beneficiary).

  1. If no Beneficiary Name, then TODD is Ineffective

If your named beneficiary dies and there is no contingent beneficiary, then the TODD is ineffective.

So, although TODDs are often beneficial and can be utilized, other issues should be considered.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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