Why do I need a transfer on death deed?
Updated: Jul 12
Congratulations! You purchased a house with your spouse. Now what?
Most people think that if you purchased a home with your spouse, and both of you are on the deed, then if one spouse dies the other spouse automatically inherits the whole house.
THIS IS NOT CORRECT.
If the deceased spouse passes away without a will then we have to look at the laws of intestacy. Depending on the family structure, the surviving spouse MIGHT inherit the other half of the house. However, if the deceased spouse had children from a previous relationship, Texas law says that the children will inherit, not a surviving spouse. As a result, I get to tell clients on a regular basis that the house that they bought with their late husband/late wife suddenly is co-owned by my client's step-children. As you can imagine, this can cause a lot of stress and strain on the family, especially when it is unexpected.
Even if your family situation is such that the laws of intestacy say the surviving spouse shall inherit the house, the transfer is not automatic. The laws in Texas require some kind of proof to show that the surviving spouse is the rightful heir, which might require some kind of probate or heirship to determine who the rightful heirs are. Again, this can be costly, time consuming and frustrating. See our blog post: What Happens if I Die Without a Will?
One solution for real estate specifically is a Transfer on Death Deed. Transfer on death deeds are deeds that name a beneficiary prior to death, and get filed in the County Clerk's records prior to death. They do not change how the home is owned while someone is alive. The transfer on death deed does not affect a mortgage, and any transfer is subject to the mortgage. Additionally, Transfer on Death Deeds are cancellable at any time, and are automatically cancelled when the property is sold. The benefit is that the Transfer on Death Deed will transfer the ownership of property without the need of of probate, and it can override the laws of intestacy.
The one caveat is that you need to tell your estate planning attorney if you already have a Transfer on Death Deed for your house because the Transfer on Death Deed can override any intentions you have in the Will, so the attorney needs to make sure your plan works with your Transfer on Death Deed. If the plan doesn't work with the old deed, the great news is that the attorney can cancel the Transfer on Death Deed and then figure out what the right strategy will be going forward.
I actually prefer Transfer on Death Deeds to create a non-probate estate over transferring a home to the trust. For one, because it doesn't transfer the ownership of a house to the trust, there will be no ownership change per the County Appraisal District. As such, clients will not need to refile for their homestead exemptions. Also, because the clients still own their home in their personal names, they will not need to transfer a home out of a trust to refinance in the future.
For a lot of my families, Transfer on Death Deeds are an important way to make sure that a surviving spouse gets to stay in the home, claim 100% of all the exemptions they are entitled to on the value of the home, as well as allow a spouse to refinance or sell a home in the future without having to get consent from other owners. It is also a convenient way to transfer the house to the second generation through a contingent beneficiary directly to the children, or transfer through a trust. Once the family home gets transferred through Transfer on Death Deed, very few families will need to go through a formal probate process, especially if they worked on naming Transfer on Death Beneficiaries on all their financial accounts prior to death. It helps create the much-desired non-probate estate without the need of a Revocable Living Trust. See our blog post: The Benefits of a Non-Probate Estate.
If you or someone you love needs a Transfer on Death Deed, please reach out Chiang Law Firm and set up a consultation today!