Transfer on Death Deeds in Texas

As of September 1, 2015, Texas will begin permitting Transfer on Death (“TOD”) deeds which allow the owner of real estate to transfer property to his or her heirs outside of probate. Upon the owner’s death, title automatically passes to the named beneficiary(ies) as a matter of law. The theory is the same as a beneficiary designation on a life insurance policy or IRA. The owner names a primary beneficiary and contingent beneficiary that will inherit the real property upon the owner’s death. Probate law does not control the disposition of a TOD deed so a probate proceeding regarding that particular property is unnecessary (absent an important exception).

Requirements of TOD Deeds

The statute requires that certain essential terms must be included in a valid TOD deed. These requirements are:

  1. Deed must contain the essential elements and formalities of a recordable deed in Texas;
    • Deed must be in writing
    • Deed must contain the legal description of the property
    • Deed must include the name and address of the designated beneficiary or beneficiaries
    • Deed must be signed by the property owner in the presence of a Notary Public
  2. Deed must state that the transfer of the property owner’s interest to the designated beneficiary will not occur until the property owner’s death;
  3. Deed must 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.

What About Delivery and Acceptance of the Deed?

The statute explicitly states that notice or delivery to or acceptance of the deed by the designated beneficiary is not required. This means that the property owner can simply execute and record a TOD deed and nothing further is required.

Can I Revoke a TOD Deed?

 Yes! A TOD deed is fully revocable during the property owner’s lifetime so long as the property owner is competent. There are three (3) ways that a TOD deed can be revoked:

  1. The property owner can execute a new TOD deed that expressly revokes the previous TOD deed or specifies that the property should pass to someone else;
  2. The property owner can sign a separate document that expressly revokes the prior TOD deed; or
  3. If the property owner gets divorced after he or she signs a TOD deed naming his or her spouse as the designated beneficiary, the entry of a final decree of divorce operates to revoke the TOD deed as to the divorced spouse if notice of the judgment is recorded before the property owner’s death in the deed records in the county clerk’s office of the county where the deed is recorded.

Note that all three methods require recordation of some type of document with the county clerk’s office in the county in which the property is situated. Additionally, a property owner cannot revoke a TOD deed by making a contrary provision in a Will (a TOD deed supersedes a Will).

Can Use of a Power of Attorney Create a TOD Deed?

No! The statute does not allow a person acting under a power of attorney to create a TOD deed for the property owner. That is why it is important that the property owner execute a TOD deed prior to the need for the power of attorney to be invoked.

How Does Beneficiary Get Ownership Upon Property Owner’s Death?

Upon the death of the property owner, a certified copy of the property owner’s death certificate should be filed with the county clerk’s office in the county in which the property is located (and where the TOD deed was recorded). The filing of the death certificate ensures that the chain of title is clean and shows that the real property has been transferred to the beneficiary.

It should be noted that title to the real property is transferred to the beneficiary subject to all mortgages, liens, judgment, and other encumbrances. In other words, the beneficiary does not take the property free and clear.

One Big Exception

As mentioned in the first paragraph, a very important exception applies to the TOD deed rules. Texas recognizes that the ability of a deceased property owner’s creditors to recover what is owed to them is significantly affected by the use of TOD deeds. Consequently, the statute requires that to the extent a property owner’s estate is not sufficient to pay the debts of the estate, related taxes, or allowances to the property owner’s family, the personal representative of the estate can enforce liability against the real property that was transferred by a TOD deed as if it were part of the probate estate.

Additionally, a court proceeding may be brought to enforce the liability by a creditor, a distributee of the estate, a surviving spouse of the decedent, a guardian or other appropriate person on behalf of a minor child or incapacitated adult child of the decedent or any taxing authority. Creditors, heirs and others have a full two (2) years to bring claims against the property. This has the effect of making clear title to the property uncertain for that two year period. For that reason, some title companies in Texas have already decided that they will require some sort of court proceeding to clear title when a TOD deed is used. This title company requirement defeats the purpose of using a TOD deed in the first place – probate avoidance.

Using TOD deeds can be a cost effective way to transfer your property to your beneficiaries without the need for probate. However, if you have debts that remain unpaid at your death, the use of a TOD deed may not provide you or your heirs any assistance at all.

To learn more about these types of deeds or to find out if using one is right for your situation, please call Green Law, PLLC today at (806) 548-2953. Together we will explore all of your options and tailor a plan to fit your individual needs.