07/16/2009 10:32:29 AM EST
Uniform Real Property TOD Act Approved
On July 15, the Uniform Law Commissioners approved a Uniform Real Property Transfer on Death Act. The final texts of uniform acts are posted on the Commission’s website, www.nccusl.org.
Under a TOD deed, the owner of the real estate signs and records a deed that provides that the transfer takes effect only at death. Should the donor change his/her mind, to revoke the deed, the donor must sign and record a revocation of deed.
The first TOD statute was enacted in Missouri in 1989, where it is estimated that more than 300,000 TOD deeds have been recorded. In states such as Missouri, the TOD deed [a/k/a a “beneficiary deed”] has become a standard part of estate planning and elder law practice. In addition to Missouri, 12 other states have enacted TOD real property statutes. Those states and the dates of enactment are: Kansas (1997), Ohio (2000), New Mexico (2001), Arizona (2002), Nevada (2003), Colorado (2004), Arkansas (2005), Wisconsin (2006), Montana (2007), Oklahoma (2008), Minnesota (2008), and Indiana (2009).
In states that have not enacted TOD deeds, numerous problems can arise when a parent seeks to transfer real estate such as the home to children or other relatives. Sometimes the parent will sign the deed but never record or deliver it. Unfortunately, a deed that is neither recorded nor delivered is ineffective. Sometimes the parent will place the real estate in joint tenancy with the child. Then if the parent changes his mind, the parent can only reacquire full title if the child agrees. Or if the child has creditor problems, the real estate might have to be sold to pay debts. The same problems can occur if the parent signs a deed retaining a life estate and the parent changes his/her mind or the child encounters creditor problems.
A TOD deed avoids all of these problems. If the donor changes his/her mind, the parent can revoke the deed. During the donor’s lifetime, only the donor’s creditors can reach the property. It is not subject to the beneficiary’s debts. Because a TOD deed must be recorded to be effective, it avoids the problems that occur when deeds are not recorded or delivered.
The new Uniform Act, which is available for enactment by the states beginning next year, builds on the statutory provisions of and experiences in the 13 states that have enacted TOD real property statutes. The Act makes clear that the TOD is only one method by which a donor may gift property. Because TOD deeds are used almost exclusively to avoid probate, under the Act, the mental capacity required to make a TOD deed is the same as for a will. To make a TOD deed, the deed must state that the transfer to the beneficiary is to occur at the transferor’s death, and the deed must be recorded before the transferor’s death in the county where the property is located. Although it is recommended that the donor tell the beneficiary of the deed, such notice is not required under the Act. Should the donor change his/her mind, the TOD deed may be revoked by a later TOD deed relating to the property or by a recorded document that expressly revokes the deed.
The Act anticipates a number of situations that can arise with respect to TOD deeds. One such situation is if the designated beneficiary dies before the donor. If this occurs, the interest of that beneficiary will fail. This is different than the situation that often occurs when a donor retains a life estate, giving the beneficiary a remainder. Should the remainder be “vested,” the remainder will pass to the remainder beneficiary’s probate estate should the remainder beneficiary predecease the life beneficiary.
One area where the existing statutes differ the most is in whether they include a form. Some do and some do not. The Uniform Act includes a sample form both for making a beneficiary deed as well as for revoking a deed. Although the publication of such forms will theoretically enable a donor to make a deed without seeking professional assistance, such practice is not recommended. It is strongly recommended that a prospective donor seek legal assistance in preparing a deed. There are too many ways that a real estate transfer can go awry without such assistance.