- Current warranty deeds are not necessarily the best choice to avoid probate.
- Dying without a will, while holding real estate, leads to much complexity and unintended consequences.
- A life estate deed allows owner to maintain possession, but the transaction is final and cannot be reversed without consent.
- A Right of Survivorship can avoid probate, but cannot be reversed without consent and may lead to loss of valuable tax exemptions.
- A Transfer on Death Deed allows for the execution of a present document whereby an owner can maintain possession and tax exemptions, avoid future probate, and retain the right to rescind at any time before death.
Such is the case in deciding what document may be best to transfer title to real estate when an owner’s death is on the horizon. Certainly there is no “one-size fits all” solution, as the parties’ actual intent in desiring a conveyance must be evaluated to narrow the choices. A key example: If a party’s intent in transferring ownership of real estate is driven not by the current need or desire to sell to another, but more the desire to avoid the perceived cost and expense of a future probate of the current owner’s estate after death, then a common warranty deed or quitclaim deed is probably not the best choice of documents. Rather, the parties should consider several options:
No conveyance – If a property owner dies while still holding title to the real estate, then title will pass either to the beneficiaries of the last will and testament, if there is one, or by operation of Texas law (intestate succession). While the probate process in Texas is not relatively expensive, many parties mistakenly assume probate should be avoided, and search for other mechanisms. Moreover, passing away without naming beneficiaries in a valid will leads to all kinds of complexities and unforeseen/unintended future ownership consequences.
Present Conveyance – The present conveyance by warranty deed would serve to immediately transfer title to the grantee; the property would no longer be owned by the grantor. As such, the property may lose certain valuable tax exemptions (such as homestead and over-65 exemptions), and the grantor could no longer legally control the future of the property. Since the deal is done, the grantor cannot later change his or her mind and leave the property to some other loved one or beneficiary.
Life Estate Deed, or a Deed Reserving a Life Estate – Under this type of instrument, a property owner may presently convey the property to his/her intended beneficiaries, but reserve the right to continue living on the property until death. This option serves to avoid future probate upon death (at least as to the real estate), give the intended beneficiary some peace of mind that they have secured title to the property, but allows the grantor to retain possession, along with any tax exemptions they may qualify for in most counties. The drawback is that in conveying title now, the grantor cannot change their mind and “undo” the transaction later without the consent of the beneficiaries.
Joint Tenancy with Right of Survivorship – Under this mechanism, an owner may add another person to the title, and allow the survivor of either owner to take full title upon death of the other without the need for probate. But not all title companies will insure properties subject to these type deeds without involvement of the probate court, and again, the grantor cannot change their mind and “undo” the transaction later without the consent of the grantee. Further, the amount of tax exemptions may be reduced due to the addition of another owner, who may not qualify for the same exemptions.
Which leads now to a new option, known as the Texas Transfer on Death Deed – This new type of deed allows a present property owner to convey an interest now to an intended beneficiary and thereby avoid probate upon their death; but in the meantime, the grantor can continue to occupy the property, qualify for present tax exemptions, and even change their mind and rescind (cancel) the deed at any time prior to death. The grantor may also sell their property and keep the proceeds without the joinder of the grantee. Because of the increased flexibility this instrument affords, the Transfer on Death Deed should prove to be a very popular instrument in Texas, one that families should consider as part of their overall estate planning efforts.
Jeffrey A. Rattikin is an AV Pre-eminent rated attorney, Board -Certified in Residential Real Estate Law by the Texas Board of Legal Specialization. Mr. Rattikin has provided transactional legal services to clients across the State of Texas for over 28 years, emphasizing real estate, business and title law. Mr. Rattikin continues to define new legal frontiers through his incorporation of technology to enhance the attorney-client experience, as evidenced by his firm’s innovative websites www.rattikinlaw.com and www.texaslegaldocs.com.