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Texas Transfer on Death Deeds

Don Hueske Board Certified, Oil, Gas and Mineral Law

Texas Board of Legal Specialization Steptoe & Johnson PLLC

(281) 203-5755 don.hueske@steptoe-johnson.com

Ashley Howie Tallichet Steptoe & Johnson PLLC

(281) 203-5769 Ashley.HowieTallichet@steptoe-johnson.com

Prepared for the Houston Association of Division Order Analysts

April 20, 2016

These materials are public information and have been prepared solely for educational purposes to contribute to the understanding of energy and oil and gas law. These materials reflect only the personal views of the authors and are not individualized legal advice. It is understood that each case is fact-specific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the authors and Steptoe & Johnson PLLC cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney-client relationship with the author or Steptoe & Johnson PLLC. While every attempt was made to insure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed. Essentially, don’t believe anything you’re about to hear. We’re lawyers, after all.

Material Disclaimer

Introduction

• Applies to a TOD deed executed &

acknowledged on or after September 1, 2015 (§114.003).

• Chapter 114 of the Texas Estates Code.

Legal Effect of Transfer on Death Deeds

• Same overall effect as a regular deed; HOWEVER transfer doesn’t occur until the grantor dies.

• Upon the owner’s death, title passes AUTOMATICALLY to the named beneficiary (or beneficiaries) as a matter of law.

Essential Elements of a Deed

• Must be in writing.

• Must contain the legal description of the property.

• Must include the name and address of the designated beneficiary (or beneficiaries).

• Must be signed by the property owner in the presence of a Notary Public.

Requirements for Validity

• Must contain the essential elements and formalities of a recordable deed (§114.055(1));

• Must state that the transfer of the property owner’s interest to the designated beneficiary will not occur until the transferor’s death (§114.055(2)); AND

• Before the grantor’s death, the deed must be recorded in the county clerk’s office of the county where the real property is located (§114.055(3)).

Requirements for Validity, cont.

• Per §114.054(a) “the capacity required to make or revoke a TOD deed is the same as the capacity required to make a contract.”

• No Power of Attorney.

• A TOD deed is effective without notice, delivery, acceptance or consideration (§114.056(1)-(2)).

Revocability • Execution of a new TOD that EXPRESSLY REVOKES the

previous TOD deed or specifies that the property should pass to someone else (§114.057(a)(1)(A));

• Owner signs a separate document that expressly revokes the prior TOD deed (§114.057(a)(1)(B)); or

• Final decree of divorce (§114.057(c));

• CANNOT be revoked by LWT (§114.057(b)).

Revocability, continued…

• Joint Tenancy – If the TOD deed is made by more than 1

transferor, revocation by one does not affect the deed as to the interest of the other transferor (§114.057(d)).

• Joint Owners with Rights of Survivorship – TOD deed is revoked only if it is revoked by ALL of

the living joint owners (§114.057(e)).

Effect of Subsequent Conveyance • An otherwise valid TOD deed is VOID as to any

interest in real property that’s re-conveyed by the transferor during the transferor’s lifetime after the TOD deed is executed & recorded IF: – A new, valid instrument conveying the interest is

recorded (§114.102(1)); and

– The recording occurs before the transferor’s death (§114.102(2)).

Survival and Transfer

• A beneficiary must survive the grantor by 120 hours (5 days) for the transfer to be effective. (§114.103(a)(1)).

• If there’s no beneficiary, the property will go through the probate process. (§114.103(a)(2))

• Property is transferred in equal and undivided shares with no rights of survivorship (§114.103(a)(3)); however…

Survival and Transfer, continued… • If the transferor has designated 2 or more

beneficiaries, and one predeceases the transferor, that person’s share passes as if the deed were a devise made in a will (§114.103(a)(4)).

• If a transferor is a joint owner with right of

survivorship, and he is survived by other joint owners, the property belongs to the surviving joint owners. (§114.103(b)).

Why Use Transfer on Death Deeds? Correctly used, Transfer on Death Deeds offer:

• An alternative to the probate process

• Cost effective and economical, particularly in the

case of small estates

• Ensures desired disposition while retaining an element of control

Life Estates, the Doctrine of Waste, and the Open Mine Doctrine

• Acting alone, neither the life tenant nor the remainderman can extract or produce minerals, or execute an oil and gas lease (Kemp v. Hughes, 557 S.W.2d 139, Tex. Civ. App. -- Eastland, 1977).

• The life tenant can occupy and use the estate during her lifetime, but cannot commit waste. The remainderman has no present possessory rights.

• An exception exists where the mine was ‘opened’ prior to the creation of the life estate.

Life Estates, the Doctrine of Waste, and the Open Mine Doctrine

• Absent agreement between the parties, the life tenant is entitled only to delay rentals (income), and not bonus or royalties (sale proceeds). The life tenant is, however, entitled to income from the investment of royalty and bonus proceeds (interest).

• The testator may provide that the life tenant be authorized to execute oil and gas leases without joinder of any other party.

Why Not Just Reserve a Life Estate?

• Property and ad valorem tax considerations, including exemptions for persons over age 65, persons with disabilities, and veterans (Sec. 114.101(C)).

• Homestead Rights (Sec. 114.101(B)).

• Doctrine of Waste inapplicable (great news for division order analysts!).

Potential Landmines • May still need to have a will, in the event a

transferee predeceases and no alternate is named.

• May be ineffective in the event property is owned as joint tenants with right of survivor.

• Property remains subject to creditors’ claims; in the event probated estate is insufficient to satisfy debts, property can be sold to pay them.

Additional Considerations

• Estate planning attorneys must be careful to

determine whether an individual has previously executed Transfer on Death Deeds, and whether they remain in effect.

• Individuals resorting to ‘self-help’ may misinterpret the effect of their actions.

Division Order Concerns • Verify that the TOD was not revoked; • Verify survival by beneficiary; • Require that a certified copy of the death

certificate be recorded in the county where the real property is located; and

• Determine whether the decedent’s

remaining estate was sufficient to satisfy any remaining debts and creditors’ claims

Ashley Howie Tallichet 281-203-5769

Ashley.HowieTallichet@steptoe-johnson.com

Don Hueske 281-203-5755

don.hueske@steptoe-johnson.com