Effective September 1, 2015, Texas will join the 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 property after you die.
This is good news for many Texans with modest estates whose only probate asset is their home.
Below are a few things you need to know about the Texas Transfer on Death Deed.
The Requirements of an Effective Transfer on Death Deed
To be effective, the deed must:
- Contain the essential elements and formalities of a recordable deed in Texas;
- It must be in writing
- Contain the legal description of the property
- Include the Name and Address of the designated beneficiary or beneficiaries
- Be signed by the Grantor (the property owner) in the presence of a Notary Public
- State that the transfer of the Grantor’s interest to the designated beneficiary will not occur until the Grantor’s death; and
- Be recorded before the Grantor’s death in the deed records in the county clerk’s office of the county where the real property is located.
Is Delivery and Acceptance of the Deed Required?
The statute specifically states that notice or delivery to or acceptance of the deed by the designated beneficiary is not required.
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.
The statute provides that if you name more than one beneficiary, 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.
Since the statute specifies that there is no right of survivorship, it also means that if you name multiple beneficiaries and one of them dies before you, the deceased beneficiary’s share will not pass to the other surviving beneficiaries.
Therefore, in most cases, it is still 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.
Should a Spouse be Named as Primary Beneficiary if Property is Jointly Owned?
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 property is owned as tenants in common and one of the owners dies, the other owner will not automatically inherit the property. In such a situation, it would be necessary to name your spouse as the primary beneficiary for your interest in the property to pass to him or her.
Can I Revoke a Transfer on Death Deed?
Yes. A Transfer on Death Deed is completely revocable during the life of the Grantor. The Transfer on Death Deed can be revoked in one of the following ways:
- By signing a new Transfer on Death Deed that expressly 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 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 is divorced after he signs a Transfer on Death Deed naming his spouse as the designated beneficiary, a final judgment of the court dissolving the marriage will operate to revoke the transfer on death deed as to the divorced spouse if notice of the judgment is recorded before the Grantor’s death in the deed records in the county clerk’s office of the county where the deed is recorded.
Can Transfer of Death Deed be Created Though Use of Power of Attorney?
No. An agent acting under a power of attorney cannot create a Transfer on Death Deed.
How Does the Beneficiary Get Title to the Property after the Grantor Dies?
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.
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 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, which may make some title companies reluctant to clear title during the claims period without a court proceeding. In contrast, filing a probate action can significantly reduce claims period against the estate.
Is it necessary to have a Will if you have a Transfer on Death Deed?
Yes. Everyone needs a Will because you may have probate assets other than your real property and there is always a possibility that beneficiaries you name in your Transfer on Death Deed will die before you or at the same time as you.
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, they are involved in a tragic accident that kills all of them. Without a Will, Jill would lose the power to decide what will happen to that property and any other property she may have owned.
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. Talk to your attorney about whether a Transfer on Death Deed is right for you.