How the New Transfer-on-Death Deed Rules Affect Your Bank
On April 5, 2012, Nebraska Governor Dave Heinemen signed the Nebraska Uniform Real Property Transfer on Death Act (the “Act”) into law. This law was effective as of January 1, 2013.
Upon your death, a Transfer of Death (“TOD”) deed allows you to transfer real estate to your designated beneficiaries. Similar to other beneficiary designations, the TOD deed will trump your Last Will and Testament and bypass the probate court process. Bankers should be aware of the operations and effects of TOD deeds as customers will begin using such deeds as part of their estate planning.
TOD Deed – Impact During Lifetime
While you must sign and record the TOD deed during your lifetime, it has no effect until your death. During the transferor’s life, the TOD deed does not give away any ownership interest of the transferor and does not create an enforceable future interest for the designated beneficiaries. Like most other beneficiary designations, the TOD deed can be changed or revoked at any time during your lifetime. You may still sell or mortgage the property during your lifetime. The TOD deed has no effect if you do not own the property upon your death; in the event you own the property in joint tenancy, the transferor must be the last surviving joint tenant.
Creation and Recording of TOD Deed
The TOD deed must include certain specific elements required by the Act, including a statement that the transfer to one or more beneficiaries will occur at the transferor’s death. In addition, similar to the signing of a will, the owner must complete the instrument with certain formalities. This means that the transferor must have the same mental capacity necessary to sign a will, two disinterested witnesses must attest to the transferor’s signature and a notary public must acknowledge these signatures.
Once the document is properly drafted and executed, the TOD deed must be recorded with the Register of Deeds within 30 days of the signing date and before your death. It also must be recorded in each county where the property is located. If you do not meet those requirements, the TOD deed will be invalid and have no effect.
TOD Deed – Change or Revocation
By statute, all TOD deeds must be revocable. Because beneficiaries of a TOD deed have no rights to the property during the property owner’s lifetime, they cannot prevent the owner from revoking the deed. There are a number of ways to revoke a TOD deed. A TOD deed would be revoked by a subsequent TOD deed or an instrument of revocation meeting the formalities of execution discussed above. The TOD deed would also be revoked upon the owner’s sale of the property during his or her lifetime. Similarly, a transferor’s divorce would automatically revoke a TOD deed made in favor of a former spouse.
TOD Deed – Impact upon Death
Upon the transferor’s death, the TOD deed becomes effective in transferring the underlying property to the beneficiary – if the transferor owned the property at the time of his or her death. However, for the beneficiary to take title to the real estate, the beneficiary must survive the transferor by at least 120 hours, unless the deed provides for a different term. If these conditions are satisfied, the beneficiary will take the property subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests to which the property is subject at the transferor’s death. The beneficiary must then file the transferor’s death certificate with the Register of Deeds to document the transfer of title.
For farm land, the Act allows the owner to include a conveyance of any growing crops to the beneficiary or another third party. Absent specific language to the contrary, any growing crops would be included in the estate of the transferor.
TOD Deed – Impact upon Creditors
The TOD deed has no effect on the rights of secured or unsecured creditors of the transferor, regardless of whether you have notice of the deed. The beneficiary of a TOD deed would take the property subject to any properly recorded deed of trust or other secured debt. Also, although the property does not pass through probate, the beneficiary would still be liable for estate administration expenses including inheritance taxes and creditor’s claims. For unsecured creditors, the Act allows them the same ability to reach the property as those non-probate assets owned by the decedent’s revocable trust.
Although TOD deeds avoid probate, many of the same features and concerns of traditional estate planning and administration exist with this nonprobate procedure. In many respects TOD deeds simplify the process of transferring real estate upon death, but there are still traps that may interfere with a transferor’s actual intent. Like any other legal document, banks and bank customers using TOD deeds should be familiar with the laws for using such instruments.