Last week we wrote about the steps that we recommend individuals take to prepare for the eventual death of a spouse: Because You Asked: How Can I Prepare in Advance for a Spouse’s Death? Technically, one could consider that the steps that we listed fall under the category of “Estate Planning”, though they lean to more practical aspects, rather than legal.
In today’s post, we invited a local attorney with whom we have worked closely to detail a particular and practical element of estate planning that many individuals remain unaware of. It is called a Transfer on Death Deed, and it may not be available in all states, but it is a provision of Texas state law. In financial planning terms, it functions as though you are designating a beneficiary for your property such as your home before your death. And the great thing is that you will not have to probate that property if you do this! Read below for the legal explanation of this provision, prepared by Robert E. Bazemore Jr., Esquire.
TRANSFER ON DEATH DEED
The Transfer on Death Deed Act was enacted into law on September 1, 2015. The original intended use of this type of transfer was to remove the homestead property from a nursing home Medicaid beneficiary’s probate estate, thereby protecting the homestead from state or federal government seizure via a Medicaid lien. Today, it is a useful tool in estate planning to vest real property in a beneficiary at the owner’s death. With appropriate planning for other assets, probate court sometimes can be avoided altogether. Here are some highlights of the Act:
- A person may transfer interests in any real property to one or more beneficiaries and is effective on the transferor’s death. The beneficiary vests title without a probate hearing.
- A TOD Deed is a non-testamentary transfer (no longer in the probate estate) – therefore, if the transferor received nursing home Medicaid benefits, then the State’s Medicaid Estate Recovery Program (MERP) cannot place a Medicaid lien on the property.
- A TOD Deed must be executed before a notary public by the transferor (or guardian with a court order), be recorded in the proper county during the transferor’s lifetime, and is revocable.
- The transferor must have the capacity to enter a contract (or have a court-appointed guardian). Under current law, an agent under a power of attorney cannot execute the deed.
- A Will cannot revoke a TOD Deed.
- The transferor maintains full ownership of the property during a lifetime, can sell or refinance the property without the consent of beneficiaries and is not liable for waste.
- The transferor keeps all county tax exemptions during lifetime (homestead, over-65, veteran, disability, etc.).
- The TOD Deed is effective without notice, delivery, or acceptance by the beneficiary and is considered a donative gift; therefore, no consideration is required.
- A divorce between the transferor and a beneficiary revokes the TOD Deed only if the judgment of divorce is recorded in the property records where the property is located.
- There is no covenant or warranty of title.
- The beneficiary still receives a stepped-up basis.
- A TOD Deed does NOT:
- affect any interest of the owner, including tax exemptions as noted above;
- trigger a “due-on-sale” clause;
- affect the rights of a secured creditor;
- affect the ability to obtain or maintain public benefits like nursing home Medicaid;
- invoke real estate notice and disclosure requirements;
- create any legal or equitable interest in the beneficiary’s favor;
- subject the property to a beneficiary’s creditors.
These are some of the major highlights of the new legislation. Please visit with your attorney to discuss the possibility of using a TOD Deed as part of an estate plan or long-term care decision. Nothing herein may be construed as offering legal advice and does not establish an attorney/client relationship.
Our Point of View:
If you have ever functioned as an Executor, and/or had to untangle and probate a complicated estate plan, you understand how costly and lengthy the process can be. As Certified Financial Planner® practitioners, we work diligently with our clients to make sure that we discuss the various components of estate planning, including naming beneficiaries on all brokerage accounts as we discussed in our post last week. We also recommend naming Pay on Death beneficiaries for all bank accounts- that is the terminology that banks use. By taking all of these steps along with the legal preparation of wills, Power of Attorney documents, trusts where indicated, and now this provision of preparing a Transfer on Death Deed for your real property, you will greatly simplify and streamline the process for the Executor and heirs of your estate, giving them an immeasurable gift.
At a minimum, we recommend that you consult with an attorney regarding these possibilities and find out if they are applicable to your situation. You are welcome to print this post and take it to your attorney, or if you would like to speak with Robert Bazemore, who drafted the information, he can be reached at (806) 329-4601 and [email protected]. Also: https://www.bazemorelaw.com/