A Transfer on Death deed (also called TOD or TODD) is becoming a popular estate planning option for many Texans. There’s little wonder why: it avoids the probate process, which can be lengthy, is relatively simple, and immediately transfers property to named beneficiaries upon the owner’s death.

But despite its growing popularity, TOD deeds come with significant risks that could complicate (or even derail) your estate planning goals. It could potentially result in disinheriting beneficiaries or losing asset value due to unnecessary taxes.

This article explores the problems with transfer-on-death deeds specifically for Texas property owners. It also provides some better alternatives that may be better suited for your estate planning needs.

What is a Transfer on Death Deed?

A Transfer on Death deed (also known as a TOD deed) is a legal document that allows property owners to designate one or more beneficiaries to inherit real estate directly upon their death.

Unlike traditional wills, a TOD deed allows property to bypass the probate process by automatically transferring ownership. It can be an attractive option for those looking to simplify their estate plans and avoid the court-supervised probate process.

But that doesn’t mean it’s a perfect solution — which is why many savvy estate planners approach TOD deeds with caution.

Legal Requirements & Checklist for Valid TOD Deeds in Texas

To make sure your Transfer on Death Deed works as you intend, it must satisfy all of the following under Texas law. Here are some points from the codified Transfer on Death Deeds under Chapter 114 of the Texas Estates Code, effective September 1, 2015. Key provisions include:

• Writing, Signature & Notary – The deed must be in writing, signed by the owner and acknowledged before a notary public (§114.051).

• Capacity of Transferor – The transferor must have capacity at signing. A TOD deed may not be created or revoked by an agent acting under a Power of Attorney (§114.056).

• Recording Before Death – The deed must be recorded in the deed records of the county where the property is located before the transferor’s death (§114.052).

• Beneficiary Survival – Unless the deed provides otherwise, a beneficiary must survive the transferor by 120 hours (5 days) or the interest lapses (§114.103).

• Legal Description – The property description must be sufficient to identify the property; use the legal description from the prior deed.

• No Warranty of Title – Even if the deed states otherwise, property transfers under a TOD deed occur without a covenant or warranty of title (§114.101).

As you can see, it’s important to consult a licensed attorney to ensure your TOD is fully valid.

Data & Case Examples: Real-World Impacts of TOD Deeds in Texas

• While exact statewide filing numbers were unavailable, interviews with several large county clerks in Texas (e.g. Harris County and Travis County) indicate that hundreds of TOD deeds are recorded annually; officials in one county estimated roughly 300-500 TODDs per year.

• A 2023 commentary by TexasLawHelp observed that many TODDs fail due to imprecise property descriptions or failure to record before the owner’s death.

• In the context of Medicaid, the Texas Bar’s “Making Sense of Medicaid Recovery” article warns that TOD deeds that are not “properly drafted and filed” can complicate qualification or protection under Medicaid estate recovery provisions. Texas Bar

• Hypothetical Case Study: Jane, a Texas homeowner, executed a TOD deed naming her son as beneficiary. She used an address plus lot number rather than the official legal description. After her death, her son’s title company refused to insure the title, citing inadequate property description, causing months of delay and legal fees.

The 4 Main Problems with Transfer on Death Deeds in Texas

TOD deeds are not a one-size-fits-all solution. Depending on your circumstances, it could also lead to challenges and contest down the road. Here are the top four problems to keep in mind:

1. Title Company Issues

One of the most common problems with transfer on death deeds arises when the property needs to be sold, refinanced, or retitled after the owner’s death. Title companies may struggle to verify the transfer, which could lead to confusion or even delays in clearing the title for sale or refinance.

If there is any ambiguity in the TOD deed, such as unclear beneficiary designations or disputes among heirs, your title transfer process may be delayed for months or years. This is similar to lady bird deeds and extremely frustrating for your loved ones, not to mention potentially costly if legal proceedings become unavoidable.

2. Exposure to Creditors

Contrary to popular belief, having a TOD deed does not shield your property from creditors. If you have outstanding debts, liens, or other financial obligations at the time of your death, creditors can make claims on the property (even if you intended it solely for your heirs).

Estate planning tools include many types of trusts, including irrevocable trusts offer more robust protection against creditor claims. Because the assets in an irrevocable trust are no longer technically your property, creditors can’t come after them to satisfy debts or take hard-won money assets from your loved ones.

3. No Protection Against Incapacity

A Transfer on Death deed cannot be modified, revoked, or updated by a Power of Attorney. This means that if you become incapacitated due to illness or injury and need to make changes to the deed, your hands are tied. 

Let’s imagine you named a single beneficiary in your final wishes, but later decided to divide the property among multiple heirs. This isn’t always possible with a TOD deed: once the document has been executed, making changes becomes a legal nightmare.

4. Lack of Flexibility

While a TOD deed might seem appealing for its simplicity, it lacks flexibility for more comprehensive estate planning needs. It may also impose rigid rules and are less adaptable when life circumstances or family dynamics change, unlike a trust or a well-drafted will.

For example, TOD deeds don’t allow for contingencies if a named beneficiary passes away or becomes unable to inherit the property. It also opens the door to unintended consequences, like unnecessary tax burdens or even disinheriting heirs. 

Specific Common Pitfalls with Transfer on Death Deeds in Texas

Even though Transfer on Death Deeds (TODDs) can avoid probate, small mistakes can make them ineffective or create new problems. Here are the pitfalls we see most often:

• Failing to Record Before Death: Texas Estates Code § 114.052 requires the deed to be recorded in the county where the property is located before the owner dies. If you sign but don’t record, the transfer is void.

• Using an Inaccurate Property Description: An address or tax parcel number alone may not be enough. Use the legal description from your prior deed to avoid rejection or title issues.

• No Alternate Beneficiaries: If the named beneficiary dies before you and no alternate is listed, the property will go through probate.

• Assuming Liens Disappear: By statute (§ 114.056), TOD deeds transfer property subject to all existing mortgages, liens, and encumbrances. Beneficiaries may inherit debt as well as the property.

• Executing Through Power of Attorney: Texas law (§ 114.055) does not allow an agent under a POA to create or revoke a TOD deed. The owner must sign personally while competent.

• Medicaid and Estate Recovery Confusion: TOD deeds do not automatically shield property from Medicaid Estate Recovery. Beneficiaries may still face claims.

• No Warranty of Title: Even if your deed includes warranty language, the statute strips it. Beneficiaries receive title “as is” without guarantees (§ 114.056).

• Life Changes Unaddressed: Marriage, divorce, moving, or selling part of the property can all upset your plan if you don’t update the deed.

Focus on Texas Probate Laws and TOD Deeds

Texas law has made TOD deeds available as an estate planning tool, but it is essential to understand the nuances specific to the state. For example:

• Texas probate laws provide mechanisms for asset distribution that can conflict with a TOD deed’s intentions if not carefully planned. This can lead to unintended legal complications. 
• The simplicity of the TOD deed process in Texas often leads to misuse or a false sense of security, as many property owners assume it suffices as a comprehensive estate plan.

Worried there might be too many problems with transfer on death deeds in Texas? You’re not the only one.

Let’s look at a few alternatives below so you can better

3 Alternatives to Transfer on Death Deeds

If a TOD deed doesn’t suit your situation, there are other options to consider. You can:

1. Create a Revocable Living Trust

A trust allows you to maintain control of your assets during your lifetime and offers greater flexibility to update beneficiaries and manage contingencies. It also provides creditor protection and smoother asset distribution after your passing.

2. Rely on a Traditional Will

While a will typically requires probate, it can be a better option for ensuring your assets are distributed according to your wishes. A properly drafted will can handle complex asset divisions or unique family dynamics more effectively than a TOD deed.

Related: Trust vs Will: Is a Will Good Enough?

3. Consult an Estate Planning Expert

Every individual’s estate planning needs are unique. Consulting with an estate planning attorney in Texas ensures you adopt the right tools for your goals. For example, combining a will with other tools (like trusts) often creates a more comprehensive estate plan than relying on a TOD deed alone.

Turn to Thomas Walters PLLC for Better Alternatives to Transfer on Death Deeds

A TOD deed seems simple at first, but its risks and limitations make it an incomplete estate planning tool. Issues with title companies, creditor claims, inflexibility, and no protection against in capacity mean that the vast majority of Texans require a more robust approach to protect their property and loved ones.

Before deciding to use a TOD deed, consider your family’s unique needs, financial obligations, and long-term goals. Estate planning is not a one-size-fits-all process—what works for someone else may not work for you.

For a tailored estate planning strategy in Texas, reach out to the qualified professionals at Thomas Walters PLLC. Our seasoned professionals can help you create a comprehensive plan that avoids potential pitfalls and creates the most effective plan for you.

Book a consultation with Thomas Walters PLLC to explore the best options available for your estate.

FAQ: Problems with Transfer on Death Deeds in Texas

Can a Transfer on Death deed be changed or revoked?

Yes, but only while the property owner is alive and competent. Once executed, a TOD deed cannot be modified using a Power of Attorney, nor after the owner’s passing.

Do TOD deeds protect property from creditors in Texas?

No, TOD deeds do not shield property from creditors. If the owner has debts at their time of passing, creditors can still make claims on the property to satisfy those debts.

Are TOD deeds the best option for avoiding probate?

TOD deeds can avoid probate to transfer property quickly. However, they are not a comprehensive solution and lack the flexibility and protections offered by trusts or other estate planning approaches.

Where can I get help with estate planning in Texas?

Consult an experienced estate planning attorney who understands Texas probate laws. At Thomas Walters PLLC, we can evaluate your unique situation and recommend the best tools to achieve your goals.

What happens if I sign a TOD deed but don’t record it?

Under Texas Estates Code § 114.052, an unrecorded TOD deed is void. It must be recorded in the county deed records before your death to be effective.

Can a beneficiary be responsible for my debts?

Yes. A beneficiary takes the property subject to any existing mortgages, liens, taxes, or other encumbrances. They may need to satisfy these obligations to keep or sell the property.

Can I revoke or change a TOD deed?

Yes. You can revoke by recording a new TOD deed or a formal revocation instrument before your death, provided you still have capacity (§ 114.057).

What if my beneficiary dies before me?

If you haven’t named an alternate beneficiary, the transfer lapses and the property will generally pass through your probate estate.

Can an agent under my Power of Attorney sign or change a TOD deed for me?

No. Texas Estates Code § 114.055 prohibits an agent acting under a POA from creating or revoking a TOD deed on your behalf.

Does a TOD deed avoid Medicaid Estate Recovery?

No. Property transferred under a TOD deed can still be subject to Medicaid Estate Recovery claims if the decedent received Medicaid benefits. Consult an attorney about planning for this.

Does a TOD deed give a warranty of title?

No. By statute (§ 114.056), TOD deeds transfer property without any warranty of title, even if the deed contains warranty language.

Can a TOD deed be used for property outside Texas?

Only if the other state recognizes TOD deeds. Each state’s laws differ, so you would need to comply with that state’s statutes.