A Transfer on Death Deed (TODD) is an easy and inexpensive way to transfer real estate to someone upon your death. Although the probate process in Texas is not as difficult as many states, with a properly executed TODD, your family will not have to go through probate court.
A TODD acts like a beneficiary designation or payable on death account at your bank. A TODD designates a beneficiary that your property will be passed to upon your death. This transfer of the property occurs outside of the probate system.
Another advantage of a TODD is that the property would NOT be subject to the Medicaid Estate Recovery, if you receive nursing home care. Under the current law, if the real estate does not go through the probate system, then Medicaid can not “go after” the house. So, make sure you or your parents do a TODD before receiving or before applying for long term care.
A TODD allows you to keep all ownership rights to the property during your lifetime. This means you can sell the property or use is as collateral on a loan. Now when you pass away, your property interest passes to the person you named in the TODD, without any probate action. This person is the beneficiary. You are allowed to name more than one beneficiary, and you can change the beneficiary at any time by cancelling the Transfer on Death Deed or making a new one.
The TODD is fully revocable, so if you change your mind and decide you do not want the primary or alternate beneficiary or if you get a divorce, then you have the option to cancel the TODD. But remember there is a process to do this cancellation, you can’t simply shred or destroy the original TODD.
If you are a joint owner, you can transfer your interest to another joint owner, such as your spouse or to non-owners like your children. They just need to be named as a beneficiary on the TODD. After you die, the beneficiary should file an Affidavit of Death in the deed records to ensure clear title.
The Transfer on Death Deed is not effective until you die. That means the beneficiary you name in the Transfer on Death Deed cannot control your property. You do not need the beneficiary’s permission to sell or mortgage the land. Your property is not subject to the beneficiary’s debts. Your interest in the real property goes to the beneficiary only after you die.
You can do a TODD even if you have an existing mortgage. Now, obviously you will still have to make payments while you are alive. If you have not finished paying the mortgage by the time you have passed away, then the beneficiary will still have to pay the mortgage.
Even though you have a TODD, you should still have a Will. The Will is a very important part of your estate plan. Your Will should designate who will receive the items within the house, such as furniture, jewelry and tools. The Will allows you to designate who will inherit the real estate, should all the TODD beneficiaries pass away before you.
A Transfer on Death deed can be a cost-effective way to transfer property at death without 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.
Paul B. Owens is an attorney practicing in the areas of Probate and Estate Planning law. He serves in a number of other capacities, including on the Board of Directors for the CASA Helotes Senior Center in Helotes Texas. He can be reached at his office in Helotes at 210-695-5110 or at www.PaulOwensLaw.com