Transfer on Death Deed Issues

Differences Between Life Estates and TODDs. 

On November 1, 2008, a new statute became effective in Oklahoma. (Later amended in 2010 and 2011).  Although Transfer-On-Death Deeds (“TODDs”) were used in other states to transfer real property prior to usage in Oklahoma, the Non-Testamentary Transfer of Property Act (Title 58, Okla. Stat. §1251, et. seq.) became effective in 2008 in Oklahoma (Effective September 1, 2015, the Texas legislature has enacted the Texas Transfer on Death Deed Act as presented in SB 462).

Surface, minerals, fixtures, easements, or other real property interests can all be conveyed with a TODD. Title to the property described in the Deed does not legally vest in the Grantees until the death of the Grantor. When using the TODD Title to the property does not vest until the death of the Grantor. In Oklahoma, Title 58 O.S. § 1253 sets out straightforward language and content to comply with conveyancing laws.

Title to the property does not vest until the death of the Grantor. Unlike a Life Estate, the Grantor may revoke the TODD at any time prior to death and may change the designation of a Grantee at any time, as opposed to a Life Estate. A TODD may avoid the necessity for Probate Proceedings. TODDs were used in other states to transfer real property prior to usage in Oklahoma. To successfully complete such transfer, the statute requires acceptance of the conveyance by the Grantee(s).

Acceptance of the property must be evidenced by recording a notarized and signed Affidavit in the office of the county clerk where the real property is located. The Affidavit must be executed by the Grantees in the TODD and have an attached certificate of death by the Record Title Owner and must contain detailed information regarding the death of the Grantor, the legal description of the property, along with additional information indicating if the Grantee was an Heir of the Grantor child or spouse.

In Oklahoma for example (other states may vary), if it is not filed within nine months of the Record Title Owner’s death in the county records indicating affirmative acceptance.  If this time limit is missed, the title reverts to the Decedent’s Estate so it passes through Testacy or Intestacy, depending on whether the Decedent had a Will. 

Why is this so attractive and likely to displace at least some use of Life Estates and Remaindermen?

TODD and Petroleum Landmen

Now, petroleum landmen may encounter a TODD, and because this instrument has the potential to become a very popular form of conveyance, landmen may soon be working on a routine basis with TODDs as they relate to Estates, Wills, Leases, Probates, and Instruments of Conveyance. 

Now, Landowners, through the use of the TODD, will be allowed to maintain full control over a piece of property during their lifetimes (unlike a Life Estate) with the assurance that, upon death of the Landowner, the property will pass directly to the named Grantees of the TODD without the need to go through Probate. To further illustrate how the TODD operates, one could compare the workings of the new TODD with a Warranty Deed that reserves a Life Estate to the Grantor.

In a Life Estate, Landowners (Grantors) are conveying a present right to a Future Interest in the real property to the Grantee that becomes Vested, that is, the Grantee acquires ownership of the Future Interest “upon execution and delivery of the Deed.” The Grantor retains the limited set of rights in the property defined as the Life Estate and the Grantee receives Present Ownership of all the Remaining Rights and Contingency Rights not included in the Life Estate. The Grantor cannot revoke these rights from the Grantee once the Deed is executed and delivered.

In this case, petroleum landmen need to have both the Life Tenant and the Remaindermen execute an oil and gas lease, or have one of them Ratify the other’s lease, etc. because both parties are Vested with certain interests in the property when the Life Estate is created and the Landman needs to ensure that the existing rights and interests of both parties are subject to the terms of the lease. 

Since a standard Deed reserving a Life Estate in the Grantor creates a present right to a Future Interest in the Grantee that vests at the execution of the Deed, the Grantor cannot later, after delivery, revoke this interest. The Case Law is not conclusive on the exact fate of a deed that attempts to both reserve a Life Estate and maintain the Grantor’s absolute right to re-convey the property. Some cases suggest that the Deed itself would be void.  Others suggest the specific provisions expressing the Grantor’s right to re-convey would be nullified. In either case, the Grantor’s original intent is compromised, and the outcome of the conveyance becomes uncertain. 

At the risk of using a well-worn cliché, with the standard deed reserving a Life Estate, Grantors cannot have their cake and eat it too. This is where the new TODD enters the stage to play its dual role. By the authority of the new statute, the TODD can be used to make a transfer of property which will only vest in the Grantee, designated as the Beneficiary, upon the death of the Grantor at some date in the future. 

The TODD “must be recorded at the time of the Grantor’s death” for the interest to vest. During the interim between execution of the TODD and vesting of the property rights, the Grantor retains the right to exercise full power and control over the property, with options to revoke the TODD at any time and sell the property to another party not listed in the original TODD.

Unlike Grantors in a standard deed that reserves a Life Estate, Grantors in the TODD can express their intent to retain complete control over the property without jeopardizing the validity of the TODD or the direct transfer of the property free of Probate upon the death of the Grantor.  

As confirmed by the new statute: “A Record Owner who executes a Transfer-on-Death Deed remains the Legal and Equitable Owner until the death of the Owner and during the lifetime of the Owner is considered an absolute Owner as regards Creditors and Purchasers.”

State Laws Regarding Deeds

Furthermore: A Deed in Transfer-on-Death Form, executed in conformity with the Non-Testamentary Transfer of Property Act, shall not be considered a testamentary disposition and shall not be invalidated due to the nonconformity with other provisions in Title 58 or Title 84 of the Oklahoma Statutes.  The TODD, by having its Interest vest at some point in the future, allows the Grantor to exceed the limitations of a standard deed that reserves a Life Estate.

There are 27 states that have provisions for allowing the transfer of real estate or real property by a Transfer-on-Death Deed (or Beneficiary Deed).  

Other states do not allow this type of Deed. 

If you try to leave property in another state by Deed at your death, it won't work. For example, if you sign a Deed transferring your house to your children and stick it in your desk drawer, knowing that they will find it there after your death, the Deed won't have any effect.  A Deed is not a valid substitute for a Will (which must be signed in front of witnesses) unless state law specifically allows it. Every state has different laws regarding the TODD and its application.  Be sure you understand those laws as they pertain to the state in which you are working.

Using a Transfer-on-Death Deed is a lot like using a Payable-on-Death (POD) designation for a bank account. You name one or more Beneficiaries now, who then inherit the property at your death without the need for Probate Proceedings. To name a Beneficiary, you use a special kind of Deed, one that's tailored to the law of your state.

The Deed looks pretty much like any other Real Estate Deed; it names the current owner, gives the legal description of the property, and name(s) of the person(s) the property will be transferred to.  But a TODD contains an additional statement, making it clear that the Deed does not take effect until the current owner's death. The named Beneficiary who is to inherit the property doesn't have any legal right to it until the death of the Grantor — or, if you own the property with your spouse or someone else, until the last surviving Grantor dies.  The Beneficiary doesn't have to sign, acknowledge, or even be told about the Deed. 

In the Deed, you can also name an Alternate Beneficiary who will inherit the real estate if your first choice isn't alive at your death. If you don't name an Alternate, and your first choice doesn't survive you, state law determines who will inherit the property. After you've signed the deed, you must record it in the local county land records office before your death.  Otherwise, it will not be valid. 

In the case of a Life Estate, petroleum landmen need to have both the Life Tenant and the Remaindermen execute an oil and gas lease (or have one sign a lease and the other ratify it) because both parties become Vested with Present Interests (the Remainderman presently has a Vested Interest in a Future Interest) in the property when the Life Estate is created and the Landman needs to ensure that the existing rights and interests of both parties are subject to the terms of the lease. In a TODD the Beneficiaries do not play a part in the leasing activities until they take possession (at the death of the Grantor).

Since a Standard Deed reserving a Life Estate creates a Present Right to a Future Interest in the Grantee that vests at the execution and delivery of the Deed, the Grantor cannot later, after delivery, revoke this Interest. The case law is not conclusive on the exact fate of a Deed that attempts to both reserve a Life Estate and maintain the Grantor’s absolute right to re-convey the property. The general rule to follow is that the Life Tenant can convey what he has retained and that is all. 

So, if John, owning in Fee Simple, prepared a Life Estate Deed retaining a Life Estate in himself and conveying the Remainder to Mary, the most John can convey is a Life Estate which terminates when John’s life ends. An exception would be if John purchased, or received by gift, or a Will, the Remainder Interest he earlier had conveyed.  Some cases suggest that the deed of the Remainder Interest itself would be void. Others suggest the specific provisions expressing the Grantor’s right to re-convey would be nullified. In either case, the Grantor’s original intent is compromised, and the outcome of the conveyance becomes uncertain.

QUESTIONS/ANSWERS about Transfer-on-Death Deed

Q&A: Do the designated Grantee-Beneficiaries of a TODD need to sign an Oil and Gas Lease?  As long as the Grantors of the TODD are living, the Grantee-Beneficiaries do not sign the lease.

Q&A: What happens if the Grantee-Beneficiary dies prior to the death of the Grantor?  If the Grantee-Beneficiary dies prior to the death of the Grantor and there is not another or Alternative Grantor-Beneficiary named, then the TODD lapses – in this case the property would be transferred through the Grantor’s Estate.

Q&A: If the Grantor has a Will which lists different Devisees-Beneficiaries for the same property described in the TODD, does it revoke the TODD?   The TODD may not be revoked by a Will – however the Grantee-Beneficiary of a TODD may be revoked at any time prior to the death of the Grantor by the execution and recording in the County Clerk’s Office (in the county where the real estate is located) of an instrument revoking the designation of the Grantee-Beneficiary.  

Q&A: If the Grantor has a Will which lists different Devisees-Beneficiaries for the same property described in the TODD, does it revoke the TODD?   The TODD may not be revoked by a Will – however the Grantee-Beneficiary of a TODD may be revoked at any time prior to the death of the Grantor by the execution and recording in the County Clerk’s Office (in the county where the real estate is located) of an instrument revoking the designation of the Grantee-Beneficiary.  Further, the designation of the Grantee-Beneficiary may be changed at any time prior to the death of the Grantor by executing and recording a subsequent TODD.  This subsequent TODD revokes all previous Beneficiaries.

Q&A: If there is a Joint Tenancy in place on the property, can a Joint Tenant use a TODD on the property and how would it affect the Joint Tenancy?  Joint Tenant Landowners may utilize a TODD to designate a Grantee-Beneficiary – the Title to the Interest shall vest in the Beneficiary only if the Grantor is the last to die of all the Joint Tenants – the execution and recording of the TODD by a Joint Tenant does not sever the Joint Tenancy. If the Grantor is the first to die, his share of the property held in Joint Tenancy passes automatically to his Joint Tenant, upon death. So, unless the Joint Tenancy was previously extinguished, as typically happens in a divorce, the deceased Grantor of the TODD would have nothing left to pass via the TODD since their share of ownership would instead automatically pass to the Grantor’s Joint Tenant.

To learn more about Transfer on Death Deeds, Life Estates, or Will and Heirship issues, visit our website at www.InstituteOfEnergyManagement.com. 

View our course catalog and click on Wills and Heirship Issues Essentials course.