Transfer on Death Deed Texas

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“When you transfer Texas real estate, you use a transfer on death (TOD) deed, but with a crucial difference: It doesn’t take effect until you die. In the event of your death, the real estate automatically goes to the person you chose to inherit it (your “beneficiary”), avoiding probate court proceedings.”

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Transfer on Death Deed Texas

This article discusses transfer on death deed Texas (TODDs) and how they work. You must sign the deed, have your signature notarized, and then record it with the county clerk’s office to use it. Otherwise, it won’t be valid.

 

What is a Transfer on Death Deed Texas?

In Texas, there is a type of deed form called a transfer-on-death deed that transfers property to named beneficiaries upon the death of an owner.1 it works much like a bank account transfer-on-death designation.

One or more beneficiaries specify their names in a transfer-on-death deed. The deed’s property will pass to them on the current owner’s death. If the main beneficiary dies before the property owner, backup beneficiaries can also get the property.

Transfer-on-death deeds are sometimes called TODs or TODDs in Texas, whereas they’re commonly known as beneficiary deeds, deeds upon death, or transfer-on-death instruments in other states.

 

Texas TOD Deeds Have What Purpose?

Transfer on Death Deed Texas has no probate requirement but must meet the TOD deed requirements (described below). TOD deeds only require some of the necessary formalities for wills.

As opposed to other ways of bypassing probate, a TOD deed lets the owner retain complete control over their property during life. TOD deeds do not become part of the owner’s probate estate. It includes control over sales, mortgages, and other property transfers. This control does not involve the beneficiaries.

Other benefits of Texas TOD deeds include: They offer the following advantages over other methods of transferring real estate in estate planning:

 

Legal fees are lower.

Living trusts usually provide the same benefits as transfer-on-death deeds, but transfer-on-death deeds offer a less expensive alternative.

 

Protection for homesteads.

Homestead status applies to the property, providing favorable tax benefits and protecting it against creditor claims.

 

Benefits under Medicaid.

As a result, the transfer is not considered when determining Medicaid eligibility and prevents the state from taking the property as reimbursement for Medicaid.

 

Savings on taxes.

According to the Internal Revenue Code, the property is eligible for a stepped-up basis when transferred at death. A step-up basis can result in substantial income tax savings when the property is sold after the owner’s death because it permanently erases any appreciation before the owner’s death.

 

Why Is It Beneficial To Avoid Probate?

When a Transfer on Death Deed Texas exists, real estate is automatically transferred upon the owner’s death, avoiding the need to go through Texas probate. Probation is a costly, time-consuming process. Passing property outside of probate reduces the overall costs of administering an estate. The beneficiary can usually obtain title to the property more quickly than if it had gone through probate.

 

What Types Of Property Can Texas TOD Deeds Transfer?

In the event of the death of an individual who owns real estate in Texas, the interest may be transferred to a beneficiary using a TOD deed. In Texas, a Texas TOD deed allows the owner to share any ownership interest in real estate. This includes part interests, which they would otherwise be able to pass by will.

ToD deeds can only transfer property interests owned by a natural person or an actual human being. Trusts and LLCs cannot share real estate via TOD deeds.

Texas TOD deeds require real estate physically located in Texas to pass. As long as the property lies in Texas, the owner need not be a Texas resident. The Texas TOD deed cannot transfer property whose owner lives in another state. If the state where the property lies recognizes TOD deeds, the owner may be able to use one in that case.

 

How Does A Texas TOD Deed Affect A Living Owner?

In Texas, TOD deeds have no legal effect on a property owner’s rights while the owner is alive. If the owner changes their mind about the TOD deed, they will not notify the beneficiary. There is no restriction on selling, transferring, or mortgaging the property. A TOD deed is revocable up until the owner’s death. TOD deeds do not restrict the owner’s rights to homestead protection and property tax exemptions.

 

How Does A Texas TOD Deed Affect A Living Owner?

 

Similarly, the beneficiary does not possess any rights in the property until the owner dies. The beneficiary does not own the property. So, they are not eligible for public assistance while the owner is alive.

Moreover, TOD deeds do not affect the rights of an owner’s creditors during their life; it does not allow the beneficiary’s creditors to claim the property.

 

When The Owner Records A TOD Deed, Can They Sell The Property?

In Texas, when the property owner records a Texas TOD deed, they still enjoy the same right to sell the property as they did before recording the deed. The TOD deed is effectively void when a deed or other instrument transferring ownership of the property occurs before the owner dies.

 

What Is The Revocability Of A Texas TOD Deed?

An owner of a Texas TOD deed can always revoke the deed as long as they are alive. It is possible to cancel a Texas TOD deed:

  • Deed of TOD later. Upon recording a subsequent TOD deed that expressly revokes a prior TOD deed or when the property passes inconsistently, the owner can withdraw the TOD deed.
  • Revocation instrument. A signed, notarized document expressing the revocation can document the revocation upon revocation.
  • Property transfer. If the owner transfers the land to another before death, a TOD deed that is otherwise valid becomes void as long as the second deed (the one transferring the property) occurs before the owner’s death.
  • The divorce. If the divorce order becomes effective before the owner dies, the TOD deed naming the owner’s former spouse as beneficiary ceases to exist.
  • TOD deeds cannot be revoked by will. It could be more effective when an owner’s will expressly revoke the TOD deed.

 

How Does A Texas TOD Deed Affect A Deceased Owner?

To acquire title to a Texas TOD deed, at least 120 hours must pass after the owner’s death. Unless the TOD deed says otherwise, the beneficiary must live longer than the owner.

Any mortgage, lien, or third-party claim that affects the property as of the owner’s death passes to the beneficiary.

When there is a lien or mortgage on the property, the estate’s representative gives notice to the creditor. If the estate cannot satisfy the creditor’s claim, the creditor may be able to attach the property.

When the owner’s estate is insufficient for estate claims, administrative expenses, estate taxes, or an allowance for the surviving spouse or children, the personal representative may attach the property.

 

Are Multiple Beneficiaries Possible With A Texas TOD Deed?

It is possible to name more than one beneficiary on a transfer-on-death deed. Texas law presumes that title passes to multiple tenants in common equally.

Owners can designate primary and alternate beneficiaries in TOD deeds. An owner can name a spouse as a primary beneficiary and children as an alternate beneficiary. When the spouse dies before the owner, the children inherit the property in equal shares as tenants in common. If the spouse outlives the owner, the spouse receives the entire property.

Designating beneficiaries as primary or alternate beneficiaries in a class is possible. There are two types of beneficiaries: primary and alternate. Each alternate beneficiary inherits the property as a whole if the primary beneficiary dies. An alternate beneficiary would receive 25 percent interest in the property if the deed named four alternate beneficiaries and the primary beneficiary died.

 

What Are The Requirements For Joint Owners To Sign A Texas TOD Deed?

Transferring real estate in Texas using a TOD deed is possible if the co-owners use a specific co-ownership form. As a tenant in common, a co-owner can use a TOD deed to transfer a portion of the interest that otherwise would have gone through probate to the beneficiary. A co-owner deed specifies how much title of a co-owned property the co-owner owns, just as it does for a solely owned property.

Joint owners are subject to more complex rules, defined as co-owners with a right of survivorship with which a deceased owner’s share automatically passes to the surviving owner.

In a TOD deed, a joint owner can name a beneficiary. When the joint proprietor who signed the TOD deed passes away first, the other joint owner has the property in survivorship rights.

As a result, the right of survivorship of a surviving joint owner prevails over a beneficiary’s right to receive a TOD deed for the same property. Only joint owners who remain the last can record a TOD deed that transfers property to their beneficiaries.

When married couples with children use Texas TOD deed rules, they can benefit from them. In the case of a TOD deed, the spouses can continue to own property, with the right to survivorship for their lives, while giving the property to their children following their death.

 

Can Joint Owners Revoke A Transfer On Death Deed Texas?

A TOD deed exists by joint tenants and co-owners, each owning a portion. One owner’s revocation does not affect the other co-owner’s interest.

If the last surviving joint owner has a right of survivorship, they have the right to revoke a TOD deed signed by joint owners with a right of survivorship. The right to revoke a TOD deed is usually fine if the joint owners share the same goals.

However, if the joint owners have different goals, the risk increases. For example, if both spouses are married again, each may want their children to inherit property instead of the other spouse’s children. After the first spouse’s death, the surviving spouse might revoke the deed and give it to the surviving spouse’s children rather than the deceased spouse’s children.

 

How Does A Texas TOD Deed Work If The Beneficiary Dies Before The Owner?

When a beneficiary appears in a TOD deed, they must still be alive at least 120 hours after the owner’s death. A beneficiary’s interest under the TOD deed lapses if they die before the owner, meaning the property passes through probate.

A property owner can modify Texas’ lapse rule in a TOD deed if it avoids a lapsed interest. When a TOD deed avoids lapses, it can prevent them from using one or more strategies.

  • Beneficiary alternative. When the owner dies, the TOD deed can name one or more alternate beneficiaries to receive the property. These alternate beneficiaries are also known as contingent beneficiaries.
  • Primary beneficiaries are multiple. It is possible to designate more than one beneficiary in a TOD deed in Texas, and survivors can receive the shares of deceased beneficiaries.

Before the owner dies, they must record the TOD deed at the county clerk’s office. The office is where the property is located. The owner must sign, notarize, and record in the land records before they pass.

 

What Are The Requirements To Obtain A Texas TOD Deed?

On September 1, 2015, Texas real estate began to be transferred on death. This will happen under the Texas Real Property Transfer on Death Act. Texas transfer-on-death deeds must comply with the same formalities and elements as other recordable Texas deeds. For example, the owner must write the deed, describe the property precisely, and sign and notarize it.

It must also state in the TOD deed that ownership will pass upon the owner’s death. The county’s land records must record the TOD deed before death.

As opposed to other types of deeds, TOD deeds do not require consideration. The beneficiary does not need to provide anything of value for the property, and there is no need for consideration to appear in the deed itself.

According to Texas statutes, transfer-on-death deeds are legal. Texas TOD deeds must follow a precise format to meet the requirements of TOD law. If the requirements do not exist, an invalid deed may result, or title issues may arise that require legal action to resolve.

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