Key Takeaways:

• Transfer on Death Deed (TODD): Texas Estates Code Chapter 114 lets property owners transfer real estate automatically at death without probate.
• Main benefit: No need for probate. The beneficiary only needs to file a copy of the death certificate at the courthouse.
• Important drawback: A beneficiary may have difficulty selling the property during the first two years because of potential creditor claims and title-insurance issues.
• Another drawback: If there are multiple beneficiaries they must receive equal shares.
• Another drawback: If a beneficiary dies first, that share does not automatically pass to the other beneficiaries.
• Bottom line: A TODD can be useful, but it generally should be used along with a Will, not instead of one.

In 2015 the Texas legislature created a new way for people to transfer ownership of real estate at the time of their death with what is called a Transfer on Death Deed (TODD) via Texas Estates Code Chapter 114. [also see A Lady Bird Deed Protects A Home Medicaid Recovery] The way it works is that the owner of the property files a deed at the courthouse during their life time which states that upon his or her death the ownership of the property is automatically transferred to an individual or individuals named in the deed.

Photo by Scott Webb on Unsplash

There are pros and cons to passing property to others this way. On the plus side there is no need to go through the probate process to transfer ownership. If you have a properly written will, probate is very efficient in Texas, but this is even faster – just file a death certificate at deed records at the courthouse.  And for people with smaller estates whose only probate asset would be the home they live in, using this kind of a deed could prevent any need for any probate proceedings at all.

As for potential cons, perhaps the biggest one is that if the beneficiary tries to sell a property received through a Transfer on Death Deed (TODD) within two years of the owner’s passing, they may run into hurdles. Creditors have a legal two-year window to make claims against the property if the deceased person’s other assets can’t cover their debts. Because of this title companies are often reluctant to issue title insurance on a TODD property within two years of the owner’s death. And without title insurance you cannot sell the property.

Another con is that if you want to have more than one beneficiary, all beneficiaries must receive an equal percentage of ownership of the property. In other words you can’t have one person get 50% and two others get 25% each.

Yet another potential con is that since there is no automatic right of survivorship via a Transfer on Death Deed, then if one of the beneficiaries you named dies before you, then that person’s share will not automatically go to the other surviving beneficiaries.

Hence, it’s still a good idea to have a will which states where a deceased beneficiary’s share should go. Actually, unless you have a very small estate where a small estate affidavit could be used, you should always have a will in place, whether you use a Transfer on Death Deed or not.