The Devil Is In The Details – Transfer On Death Deeds: Jacob Wooley, Partner

The Devil Is In The Details – Transfer On Death Deeds: Jacob Wooley, Partner

In 2015, the Texas Legislature passed a law adopting the Transfer on Death Deed (“TODD”). The TODD was adopted, presumably, as an alternative to probating an estate simply for the purpose of clearing title to real estate. More plainly, if you only own a home, you could avoid probate with this type of deed. While that sounds like a viable option at first, there are many shortcomings and pitfalls to using the TODD. 

Using a TODD is essentially naming a beneficiary to your property. When you die, your property will automatically vest in your beneficiaries. They will still need to show a death certificate and have the records updated with the County Clerk and the Count Appraisal District. 

One of the most common areas of TODD failure is only being able to transfer an equal fractional interest. That limitation can drive property owners to leave their property to one single beneficiary in hopes that they will “do the right thing” when handling the property after the original owner’s death. This rarely works, and families end up in court anyway over disagreements considering what “the right thing is”. Crain & Wooley strongly urges property owners not to try and make their intentions fit into an estate planning shortcut like a TODD. These shortcuts often turn out to cost a lot money to fix when not followed to the “T”.

The use of a TODD can hinder a beneficiary’s ability to sell the property in many ways. First, a TODD has a creditor period attached to the transfer for 24 months. For 2 years, a creditor can place a lien or a claim against the sale of the property. This can and will keep the title of the property from being transferable. Unless your beneficiary plans to keep the property for 2 years after your death, the TODD is not your best option. 

A TODD cannot and does not provide any warranty of title. This will cause other issues making it more difficult for a beneficiary to sell the property. Leaving your property to any person without a warranty of title can be giving them more of a burden than a blessing.

A contradiction in the law establishing the TODD is that a TODD cannot be created by an agent acting under Power of Attorney, but it CAN be revoked by an agent acting under Power of Attorney. If you have a Power of Attorney appointed to act on your behalf during a period of disability or incapacity, that agent would not be able to create a TODD for your property. However, that agent can revoke a TODD that you have put in place, even if that revocation plays into their favor. 

As you can see, a TODD does not offer the same safeguards provided by a more thorough estate plan like a will or trust. What started out as a good idea in theory lacks greatly in practical implementation.

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2 Comments
  • Bill Ricker
    Posted at 15:32h, 24 September Reply

    And it you own your home free and clear?

    • admin
      Posted at 10:16h, 25 September Reply

      Great question. Many people confuse mortgage loans with deeds. Those are two totally different items. There are many times in which the mortgage holder is totally different than the people named on the deed (for example one spouse has bad credit and is therefore not on mortgage but on deed). Transfer of property, in general, is DEED work. Since a TODD is a type of DEED, all of the issues apply whether a mortgage is on a home or not. For example, the creditor period on a TODD is not restricted only to a mortgage loan. The two year creditor period included in the TODD legislation is open to ANY type of creditor: medical, credit cards, etc.

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