Do you want to avoid probate? Other than life insurance, retirement accounts, and pay-on-death bank or investment accounts, are all your assets held in trust except for your homestead and other real property? The new “Transfer on Death Deed” may be an instrument that can help.

Like designating beneficiaries for life insurance, retirement accounts and pay-on-death bank or investment accounts, the Texas Real Property Transfer on Death Act[1] now allows an owner of interests in real property to designate beneficiaries (and alternate beneficiaries) to receive title to such real property interests at the owner’s death without going through probate. To do so, the real property owner needs to execute and record a Transfer on Death Deed in the Deed Records of the county in which the real property is located.

A Transfer on Death Deed does not “affect an interest or right of the transferor” in the real property during the transferor’s lifetime.[2] As such, even after a property owner executes and files a Transfer on Death Deed, the property owner will still be able to: (1) transfer or otherwise encumber the property; (2) retain his or her homestead rights in the property; and (3) retain all property tax exemptions available to the property owner.[3] Moreover, the execution and recording of a Transfer on Death Deed should not affect the property owner’s eligibility for public assistance,[4] and does not trigger a “due on sale” clause if there is a mortgage on the real property.[5]

Similarly, during the transferor’s lifetime, an executed and recorded Transfer on Death Deed does not grant any interests or rights in the subject property to the designated beneficiaries.[6] Accordingly, utilizing a Transfer on Death Deed also should not affect any designated beneficiaries’ eligibility for public assistance during the transferor’s lifetime.[7] At the property transferor’s death, however, the ultimate beneficiary does take the real property subject to all mortgages, liens and claims against the real property.[8] After the property transferor’s death, the ultimate beneficiary under the Transfer on Death Deed will therefore be responsible for paying any such debts on the real property.

What if you, as the transferor under a Transfer on Death Deed, change your mind as to whom you want the subject real property to be transferred to at your death, or if you go through a divorce and previously had designated your spouse as the beneficiary under a Transfer on Death Deed? Not a problem—a Transfer on Death Deed is revocable during the property transferor’s lifetime.[9]

Under the Texas Real Property Transfer on Death Act, you can revoke a prior Transfer on Death Deed by recording a Cancellation of Transfer on Death Deed in the Deed Records of the county in which the real property is located.[10] If you go through a divorce, are awarded the subject property, and previously designated your spouse as the beneficiary under a Transfer on Death Deed, you also can revoke the Transfer on Death Deed by recording the divorce decree in the Deed Records of the county in which the subject real property is located.[11] If you simply would like to change the beneficiaries designated in a Transfer on Death Deed, you can record a new Transfer on Death Deed designating new beneficiaries, which will revoke the designations of the prior named beneficiaries.[12] Because the transfer of real property through a Transfer on Death Deed is not part of the probate process (and not made pursuant to a Will), a provision in a probated Will relating to such subject real property will not revoke or supersede a Transfer on Death Deed.[13]

With the flexibility provided by Transfer on Death Deeds, it may be an appropriate instrument to use as part of your overall estate planning. However, each individual’s circumstances vary—as such, whether to utilize Transfer on Death Deeds need to be carefully assessed together with the various other estate planning tools available.