Bulletin: TX2015003

Date:
August 04, 2015
To:
All Texas Issuing Offices
RE:
LEGISLATIVE UPDATE - 2015 Legislative Update - SB 462 -Transfer on Death Deed

Dear Associates:

Effective September 1, 2015, the Texas legislature has enacted the Texas Transfer on Death Deed Act as presented in SB 462. The intent of the Act is to create a statutory vehicle for transferring real property without the expense of a probate proceeding. Through a recorded Transfer on Death Deed (“TODD”), a real property owner can designate a beneficiary or beneficiaries to receive the property upon the owner’s death automatically. The beneficiary has no interest in the real property during the owner’s lifetime and, therefore, the owner retains full authority to transfer or encumber the property until his/her death. 

How does it work?

  • Using a TODD, owners can transfer their interest in real property to one or more beneficiaries to be effective at owner’s death. The TODD must be recorded in the deed records in the county clerk’s office of the county where the real property is located.
  • A TODD is always revocable during the life of the transferor, but cannot be revoked through a will. A will provision also cannot replace a TODD beneficiary designation. 
  • A TODD transfers real property without covenants of warranty of title even if the deed contains a contrary provision.
  • It cannot be created through use of a power of attorney. 
  • Creditors of the grantor have two (2) years to bring a claim against the estate per Estates Code Sec. 114.106(e).
  • The Act applies to TODDs executed and acknowledged on or after September 1, 2015 by a transferor who dies on or after September 1, 2015. The Act does not affect other methods of transferring real property.

What must it contain?

  • The essential elements and formalities of a recordable deed
  • State that the transfer of an interest in real property to the designated beneficiary is to occur at the transferor’s death; and
  • Be recorded before the transferor’s death in the deed records in the county clerk’s office of the county where the real property is located.
  • No notice, delivery, acceptance, or consideration is required.

How is the TODD different than a Lady Bird Deed?

  • In a Lady Bird Deed, the Grantor reserves a life estate (full possession, benefit, and use of the property for the remainder of the life of Grantor). The Grantee holds a remainder interest in the Property until Grantor’s death. Therefore, two distinct interests are held by both parties.
  • In a TODD, the Grantor retains all interest in the property during Grantor’s lifetime and the designated beneficiary has no interest until Grantor’s death. The TODD functions much like a pay-on-death account. 

WHAT YOU SHOULD DO: 

Because the TODD does not carry a warranty, you cannot rely on a starter if the owner is deceased and the TODD designates a beneficiary outside of a family member. You must conduct a standard thirty-five (35) year search or a search starting from the first deed older than thirty-five (35) years (follow Bulletin TX0000065).  

If the owner is deceased and the TODD designates a family member or members as beneficiary(ies), conduct your thirty-five (35) year search and require the subsequent deed from the beneficiary be a General Warranty Deed or Special Warranty Deed. If you are asked to accept another deed form, contact a Texas underwriter for approval.

Stewart will accept a TODD as a vesting instrument so long as it substantially conforms to the statutory form as provided in Estates Code Sec. 114.151. If you receive a non-statutory form that appears to not contain the elements required above, seek Texas underwriter approval.

If the real property is non-homestead, you must wait two (2) years after the transferor’s death to allow creditors to file a claim against the transferor’s estate. You must also examine a balance sheet of the estate and obtain an indemnity from the beneficiaries as required in P-11b. (9). Please note that the beneficiaries must prove their solvency to the Stewart underwriter’s sole satisfaction.

Revocation of a TODD and the Effect of Will or Marriage Dissolution

A will may not revoke or supersede a TODD.

Revocation by one transferor in a TODD made by more than one transferor, does not affect the deed as to the interest of the one not revoking.

TODD made by joint owners with right of survivorship is revoked only if it is revoked by all of the living joint owners.

It should go without saying that a deceased transferor cannot revoke a TODD.

Effective revocations:

  • Subsequent TODD that revokes the preceding TODD or part of the TODD expressly or by inconsistency;
  • Instrument of revocation that expressly revokes the TODD or part of the TODD (see the statutory Cancellation of Transfer on Death Deed form provided in Estates Code Sec. 114.152);
  • Final judgment of a court dissolving marriage operates to revoke the TODD as to the designated beneficiary if recorded before the transferor’s death in the deed records.

Must be:

  1. Acknowledged by the transferor after the acknowledgment of the deed being revoked; and
  2. Recorded before the transferor’s death in the deed records in the county clerk’s office of the county where the deed being revoked is recorded.

WHAT YOU SHOULD DO: 

Stewart will accept a Cancellation of Transfer on Death Deed as a valid revocation so long as it substantially conforms to the statutory form provided in Estates Code Sec. 114.152 and has been acknowledged by the transferor after the acknowledgement of the TODD being revoked. The Cancellation must also be recorded before the transferor’s death in the deed records in the county clerk’s office of the county where the deed being revoked is recorded. Stewart will not accept a revocation of a TODD made through a power of attorney. 

If the revocation is by inconsistency, please consult a Texas underwriter. 

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
TX2013001 GENERAL - Elder Law Planning and Title Insurance
Underwriting Manual:
4.16 Deeds Of Conveyance
 
TX 4.04 Decedent's Estates
 
TX 17.30 Remainders
Exceptions Manual:
None
Forms:
TX Power of Attorney, Statutory Durable 1