Bulletin: TX2015003

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 the 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 the 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 and less than two (2) years have passed since the transferor’s death, you should add the following exception:

Loss, cost or expense resulting from any claim that the assets of the estate of _____________________ (insert name of deceased) are insufficient to satisfy any estate claim against the estate or expense of the administration.

As with any deceased owner, 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;
• The 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);
• The 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 acknowledgment 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.

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