Transfer on Death Deeds (“TODDs”) have become an increasingly common tool for transferring real estate outside of probate in Minnesota since the Transfer on Death Deeds statute, Minnesota Statute 507.071, was signed into law in 2008. For many clients and legal practioners, the appeal is clear: TODDs allow real property to pass by operation of law at the death of the property owner without the need for a probate proceeding. In Minnesota, a probate is required when someone dies while owning real estate that is: (1) not held in joint tenancy; (2) not owned by a trust; and (3) not subject to a TODD. A probate can be expensive and timely; thus, it is useful to be aware of all the tools at one’s disposal to avoid it.
At a basic level, a TODD is a deed that names one or more beneficiaries to receive real property upon the death of the owner. No present interest in the property is conveyed to the beneficiaries during the owner’s lifetime, which means that the owner retains the ability to sell, mortgage, or otherwise deal with the property without the beneficiaries’ consent. Critically, a TODD must be recorded in the county where the property is located prior to the death of the owner. A TODD that is otherwise validly executed will not affect the desired conveyance if left unrecorded. TODDs are revocable during the owner’s lifetime; the owner, or one of the owners if the TODD is executed by more than one person, may revoke the TODD by executing and recording a revocation with the county where the property is located prior to the death of the owner(s). A TODD may also be modified, or revoked by implication, by executing and recording a new TODD in connection with the same property. At the death of the owner, or the last of the owners to die if the property is held in joint tenancy, the property transfers to the named beneficiaries, but remains subject to valid creditor claims (e.g., an existing mortgage) and claims of the owner’s surviving spouse if they did not execute or consent to the execution of the TODD.
The advantages of TODDs are clear. They provide a relatively simple and cost-effective way to avoid probate for real estate while allowing the owner to retain complete control during life. At the same time, TODDs have important limitations. Unlike a revocable trust, another instrument used to avoid probate, a TODD does not provide any structure for ongoing management of the property. A TODD also operates independently of a will or a trust, which can lead to unintended results if the TODD is not coordinated with the broader estate plan.
Practical complications can arise when multiple beneficiaries are involved. For example, an owner names three adult children as equal beneficiaries of a homestead. Upon the owner’s death, those children take title to the property. If any of the children are married, their spouses may have marital interests that must be addressed before the property can be sold. In practice, this means that a future sale of the property could require the cooperation and signatures of not just the three beneficiaries, but potentially six individuals, which could be nearly impossible within some family dynamics.
TODDs can present additional issues when used in conjunction with property owned in joint tenancy, which contains the right of survivorship. The right of survivorship acts to automatically pass the ownership interest of a joint tenant, at death, to the surviving joint tenant(s). Under Minnesota Statutes 507.71, subd. 6, a TODD does not override the rights of a surviving joint tenant unless all joint tenants have executed the TODD. For example, two brothers own a cabin as joint tenants with the right of survivorship. One brother executes and records a TODD intending to transfer his one-half interest to his children at death. If the other brother does not execute the TODD, the surviving brother will take full ownership of the property upon the first brother’s death. In that case, the TODD is effectively defeated, and the children receive no interest in the cabin property.
Insurance considerations are also often overlooked. Under Minnesota law, a TODD beneficiary has an insurable interest in the property during the owner’s lifetime. After the death of the owner, insurance companies are legally required to provide temporary insurance coverage to a TODD beneficiary for the lesser of: (1) 30 days from the date of the owner’s death; or (2) the expiration date of the insurance policy. Importantly, this requirement of insurance companies only applies if the owner notifies the insurer of the existence of the TODD. As a practical matter, practitioners often recommend naming the TODD beneficiaries as additional insureds on the homeowner’s insurance policy. This can better help to avoid gaps in coverage during the transition period following the owner’s death.
Careful drafting is critical to ensure a TODD functions as the owner intends, including an accurate legal description of the property, which is typically taken from the vesting deed or a certificate of title, and proper beneficiary designations. An owner may name multiple beneficiaries, as well as successor beneficiaries. If one of multiple named beneficiaries dies before the owner, the default rule under Minnesota law is that the surviving beneficiary or beneficiaries are entitled to the predeceased beneficiary’s interest. This may not align with the owner’s intent. For example, an owner naming their two children as equal beneficiaries may assume that, if one child predeceases them, that child’s share will pass to the predeceased child’s children. Although this is the common distribution intent in many estate plans, in the absence of clear language, however, the entire interest would pass to the surviving child.
Finally, it is important to understand the limited scope of a TODD. A TODD applies only to the real property specifically described in the document and, if specifically provided, any after-acquired interest in that same property. It does not apply, however, to other real estate the owner acquires after executing the TODD. If the owner later purchases additional property, a separate TODD must be executed and recorded to achieve the same non-probate transfer for that property.
While TODDs can be an effective and efficient tool for transferring real estate, this overview does not capture every nuance or potential issue that may arise. Careful consideration and coordination are essential, and individuals should consult with qualified legal counsel to ensure that a TODD is appropriate and properly structured to carry out their intentions.
