Are Transfer on Death Deeds a Smart Estate Planning Tool?

Estate planning is essential for protecting your assets and ensuring your loved ones are cared for after you're gone. If you own property in Kerrville, TX, you may have heard about Transfer on Death (TOD) deeds as a way to pass real estate to beneficiaries without going through probate. While TOD deeds can be useful, they also come with potential drawbacks. At McCammon Law, P.C., we help clients determine whether a TOD deed fits into their overall estate plan.

What Is a Transfer-on-Death Deed?

If you own real property, such as a home, in your sole name but you have not created a trust and transferred your property’s title to the trust, it is virtually guaranteed that your beneficiaries (or heirs) will have to deal with probate after your death. If the time and expense required to create a living trust does not make sense for your situation but you still want to avoid the probate process, a transfer-on-death (TOD) deed may be the solution. A TOD deed (also known as a beneficiary deed) does what it sounds like it does—it transfers your real property to your selected beneficiaries upon your death, similar to a payable-on-death designation for a bank account or a transfer-on-death registration for an investment account. During your lifetime, you continue to own and control the real property, so you can sell it, lease it, refinance it, give it away, or do anything else with it you choose. You also continue to be responsible for paying the mortgage and taxes and maintaining the property. If you still own the property at your death, the TOD deed works to automatically transfer the property to your named beneficiaries without having to go through probate. And if you change your mind during your lifetime about whom you have named as beneficiaries in the TOD deed, you can amend or revoke it at any time. Learn more about another type of beneficiary transfer deed in our article: What Should I Know about Lady Bird Deeds?

Key Features of a TOD Deed:

• Retain full ownership during your lifetime – You can sell, refinance, or change the beneficiary at any time.
• No immediate transfer – Your beneficiary has no legal claim to the property while you are alive.
• Avoid probate – The property automatically transfers to your named beneficiary upon your death.
• Simple and cost-effective – A TOD deed is often cheaper and easier than setting up a trust.

Texas law allows property owners to use TOD deeds, making them an appealing option for Kerrville residents who want to keep things simple. However, like any estate planning tool, there are situations where a TOD deed may not be the best choice.

How to Create a Transfer on Death Deed in Texas

If you decide to use a TOD deed for your Kerrville property, you must follow specific legal steps to ensure its validity.

1. Complete the TOD Deed Form

Texas has a standardized form for TOD deeds. Working with an experienced Kerrville estate planning attorney ensures that you use the required legal language to ensure the deed is enforceable. A TOD deed will look much like any other property deed, but it will contain specific language that makes it clear that the deed does not take effect until after your (the owner’s) death.

2. Name Your Beneficiary

Your beneficiary can be an individual, multiple people, or an organization (such as a charity).  You may want to consider naming a contingent, or alternate, beneficiary in case your first choice for beneficiary passes away before you do.  If you name multiple beneficiaries, be clear about how they will share ownership.

3. Describe the Property

The deed must include the property’s correct legal description, which can be found on your existing deed, your sales contract, your mortgage documents, or in county records.

4. Sign and Notarize the Deed

You (and potentially your spouse) must sign the deed in the presence of a notary public.

5. File the Deed with the County Clerk

To be legally effective, the deed must be recorded with the proper land records authority, in the corresponding recorder’s office, land registrar, or county clerk’s office where the property is located before your death. Failing to properly file the deed could cause complications for your beneficiaries, so it’s crucial to get it right.

Benefits of Using a TOD Deed in Kerrville, TX

A TOD deed can be a useful estate planning tool in many situations. Some of the main benefits include:

Avoiding Probate

One of the primary reasons people choose a TOD deed is to avoid the time-consuming and costly probate process. Instead of going through court, the property automatically transfers to the beneficiary.

Maintaining Control Over the Property

Unlike adding a child or relative to your deed while you’re alive, a TOD deed does not give them any rights until your passing. This means your property is protected from their creditors, lawsuits, or divorce settlements.

Transfer on Death Deeds Are Easy to Create and Modify

A TOD deed is simpler and less expensive than setting up a trust. Plus, you can change or revoke it at any time as long as you are mentally competent.

Potential Downsides of TOD Deeds

While a TOD deed can be beneficial, it may not always be the best option, especially for complex estates.

Possible Conflicts with Your Estate Plan

If you have a will or trust that distributes assets differently, a TOD deed could unintentionally override your estate plan.

Issues with Multiple Beneficiaries

Naming multiple beneficiaries can lead to ownership disputes. If one beneficiary wants to sell the property and another does not, legal conflicts can arise. Read more about other issues that can arise with beneficiaries and your real estate in our article: If I Give My Home to My Child in My Will, Can They Take My Home While I Am Still Alive?

Impact on Medicaid and Asset Protection

A TOD deed does not protect property from Medicaid recovery or potential creditor claims after your death. If Medicaid paid for long-term care, the state may seek reimbursement by placing a lien on the property.

Estate Expenses and Taxes

If most of your assets pass through TOD designations, your estate may lack the liquidity to pay debts, taxes, or final expenses. This could leave your executor struggling to cover costs.

Because of these potential pitfalls, we strongly recommend working with an estate planning attorney in Kerrville to ensure a TOD deed aligns with your overall estate plan.

Should You Use a TOD Deed?

A TOD deed can be a great tool for avoiding probate, but it should be used carefully. If your estate is straightforward and you want to pass a home or land to a single beneficiary, a TOD deed could be a simple, cost-effective solution.

However, if you have multiple heirs, complex assets, or specific wishes for how your estate should be handled, you may be better off using a trust or another estate planning strategy.

At McCammon Law, P.C., we help Kerrville residents create customized estate plans that ensure their assets are transferred according to their wishes.

Speak with an Estate Planning Attorney in Kerrville, TX

A TOD deed can be an inexpensive and simple way to avoid the probate process upon your death and transfer your real property to your intended beneficiaries. However, it is important to understand the practical and legal implications for your individual situation and wishes.  Before making a decision about a TOD deed, consult with an estate planning attorney who understands Texas law. At McCammon Law, P.C., we can:

• Review your estate planning goals
• Explain how a TOD deed fits into your plan
• Help you avoid common pitfalls
• Ensure your assets are protected and distributed properly

Request a Consultation with McCammon Law if you have questions about whether using a TOD deed is appropriate for your circumstances.

Reference: mondaq (March 15, 2023) “Transfer-on-Death Designations: A Word of Warning”