Real Property Transfer on Death Act
Chris Burti, Vice President and Legal Counsel

Elder Law is becoming a burgeoning practice area as the Baby Boomer Generation is rapidly beginning to gray out. This group has arguably accumulated more wealth as a group than any prior generation and has paid more taxes to support entitlement programs than any have previously. Not surprisingly, its members are trying to retain as much of this wealth as possible and pass it on to the next generation while lawfully maximizing their rights to participate in governmental entitlement programs. The Federal Government’s attempts to cut costs by restricting these entitlements has given rise to a concentrated effort among Elder Law practitioners to develop mechanisms to legally retain assets within the family while qualifying for benefits.

Two devices currently employed in North Carolina with increasing frequency are deeds containing powers of appointment. Those containing a testamentary power to a specified class are often referred to as “enhanced life estate" deeds and those permitting discretionary disposition by deed are often called ‘Ladybird’ deeds. Because there is no express statutory law authorizing the use of these types of conveyances and because there is little common law defining the parameters of their use, practitioners have little to guide them as regards their efficacy.

One potential solution may be forthcoming from the National Conference of Commissioners on Uniform State Laws, (NCCUSL). NCCUSL works to draft uniform laws that provide consistency from state to state. The solution may be in a proposal for a uniform act providing for revocable deeds conveying real estate effective upon the death of the grantor. The background and issues memorandum prepared for the first meeting of the Drafting Committee for Uniform Transfer-on-Death for Real Property Act observes that one of “the main innovations in the property law of the twentieth century was the development of will substitutes for the transfer of property at death. By these mechanisms, an owner may designate beneficiaries to receive the property at the owner’s death without waiting for probate and without the beneficiary designation needing to comply with the witnessing requirements of wills.” The memorandum notes that this has primarily applied to personal property, but in a few states these transfers have been extended to land. In most of these jurisdictions this is accomplished by permitting land to be registered in a transfer-on-death (TOD) instrument. The owner identifies the beneficiaries who will take the land at the owner’s death. During the owner’s lifetime, these beneficiaries and their creditors have no interest in the land while the owner retains full power to revoke or amend the beneficiary designation.

Copies of this proposed uniform Act entitled in the form of a draft dated March 3, 2008, may be obtained online by following the dropdown menus on the NCCUSL home page at:  www.nccusl.org (or by linking directly to the committee page at: http://www.nccusl.org/Update/CommitteeSearchResults.aspx?committee=278).

The draft is divided into four articles. Article 1 contains general provisions, Article 2 authorizes transfer on death (TOD) deeds and sets forth the required formalities and substantive provisions, Article 3 suggests statutory forms and Article 4 contains miscellaneous provisions. These forms are early drafts, and suggestions for improvement are sought by the committee.

The general provisions contained in the first Article set out the short title and contain the definitions.  The term “beneficiary” conforms to the standard NCCUSL definition of “person” and includes the trustee of a trust even if the trust is revocable. The Article treats joint owners who hold concurrent interests with a right of survivorship and would apply to all interests in real property that are transferable at the death of the owner. The Act would be limited to the use of TOD deeds to transferors who are individuals. The term “transferor” would not include a corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any legal or commercial entity other than an individual. It will also not create new authority by including an agent acting under a power of attorney. The power of an agent to create or revoke a transfer on death deed will be determined by other state law, as noted further in Sections 204(b) and 207(d). The statute would not be deemed the exclusive method of effecting such transfers, therefore common law mechanisms such as power of appointment deeds would be unaffected.

Article 2 contains Section 201 which authorizes TOD deeds and makes it clear that such transfers are not an inter vivos transfer. The transfer occurs at the transferor’s death and Section 202 provides that the TOD deed is nontestamentary. However, Section 203 stipulates that the capacity required to effectively make or revoke a transfer on death deed is the same as required to make a Will. Section 204 sets out the requirements for a valid TOD deed. An attorney in fact may execute a transfer on death deed to the extent permitted by applicable law. The deed must:

           (1) contain the essential elements of a deed;

           (2) state that the transfer is to occur at the transferor’s death;

           (3) be acknowledged by the transferor; and

           (4) be recorded before the transferor’s death in the county where the property is located.

Section 205 provides that a TOD deed is effective without consideration, notice, delivery to or acceptance by the beneficiary during the transferor’s lifetime.  Section 206 permits the transferor to designate multiple beneficiaries who may take title “in any form of concurrent or successive ownership, contingent or vested, valid in this state.” Section 207 provides for revocability by proper recording of a subsequently acknowledged TOD deed or revocation form that revokes the previously acknowledged deed expressly or by inconsistency in the county where the property is located before the transferor’s death. The section makes provision for common interests, joint interests and attorneys in fact. Importantly, the section prohibits revocation or modification by Will.

The fundamental purpose of a transfer on death deed is for it not to operate until the transferor’s death. During the transferor’s lifetime, it is intended that the deed should be revocable and ambulatory, just as a will, and it is to have no more effect during the transferor’s lifetime than a will. Thus, Section 208 makes it clear that a transfer on death deed, during the transferor’s lifetime, does not sever a joint tenancy, that it does not affect the rights of creditors, whether secured or unsecured or that it does not affect the transferor’s eligibility for any form of public assistance, including Medicaid.

Section 209 deals with the effect of the TOD after death.

            (a) Except as otherwise provided in subsections (b) and (c) [and in [cite state statute on antilapse, if applicable to nonprobate transfers]], on the death of the transferor, the following rules apply to the property that is the subject of the transfer on death deed:

                        (1) The property owned by the transferor at death is transferred to the beneficiaries who survive the transferor in accordance with the deed.

                        (2) Unless the deed provides otherwise, beneficiaries receiving concurrent interests receive equal and undivided shares in the property with no right of survivorship if a beneficiary dies after the transferor’s death [unless two of the beneficiaries are husband and wife, in which event they receive their interests in the property as [tenants by the entirety][owners of community property with right of survivorship]].

                        (3) If no beneficiary survives the transferor, a transfer on death deed is void.

            (b) On the death of a transferor who is a joint owner, the property belongs to the surviving joint owner or owners, and the right of survivorship continues between or among the surviving joint owners. A transfer on death deed is effective at the death of the last surviving joint owner only if that owner is a transferor on the deed.

            (c) A beneficiary receives a transferor’s interest at the transferor’s death subject to all conveyances made during the transferor’s lifetime and all encumbrances, assignments, contracts, mortgages, liens, and other interests affecting the property, whether or not recorded and whether created before or after the recording of the transfer on death deed, to which the property is subject at the transferor’s death.

Subsection (b) is consistent with the majority rule and with Sections 207(2)(c) and 208(1) in that a right of survivorship trumps the TOD deed.

Section 210 would provide alternative provisions for the legislature to include a right in the beneficiary to disclaim any interest in the property conveyed by a TOD deed.   North Carolina having a renunciation statute would opt for the first alternative, the second being for states with common law disclaimer rights.  Section 21 would make any covenant or warranty of title in the deed nugatory. This would eliminate contention over title issues with the estate of the transferor. To the extent that the transferor had power to prevent the transfer by revocation or withdrawal and instead apply it to discharge obligations that would become claims against the transferor’s probate estate Section 215 would subject the beneficiaries’ interest in the property to the claims of the creditors of the transferor’s estate. The draft reporter’s note suggests that this should be consistent with the State’s provisions for joint and survivor bank accounts.

As noted, Article 3 would promulgate forms and as they are illustrative, we have included them unedited as set out in the draft.

             SECTION 301. FORM OF TRANSFER ON DEATH DEED. A document substantially in the following form satisfies the requirements for a transfer on death deed under this [act]:

[front of form]

TRANSFER ON DEATH DEED

Notice to Owner

            You should carefully read all information on the other side of this form. YOU MAY WANT TO CONSULT A LAWYER BEFORE USING THIS FORM.

            This form must be recorded before your death, or it will not be effective.

Identifying Information

            Owner(s) Making This Deed:

            ___________________________      ______________________________

                        (name)                                                (mailing address)

            ___________________________      ______________________________

                        (name)                                                (mailing address)

Legal Description of the Property:

            ___________________________________________________________

            ___________________________________________________________

            ___________________________________________________________

Beneficiary or Beneficiaries

            I revoke all my previous transfer on death deeds affecting the property, and name the following beneficiary(ies) who survive me to receive the property (in equal and undivided shares with no right of survivorship between them, unless I say otherwise in this deed):

            Beneficiary(ies)– include mailing addresses if available

            ___________________________________________________________

            ___________________________________________________________

            ___________________________________________________________

            Alternate Beneficiary(ies) – Optional

            If no above beneficiary survives me, I name the following alternate beneficiary(ies) who survive me to receive the property (in equal and undivided shares with no right of survivorship between them, unless I say otherwise in this deed):

            Alternate Beneficiary(ies) – include mailing addresses if available

            ___________________________________________________________

            ___________________________________________________________

            ___________________________________________________________

Transfer on Death

            I transfer my interest in the described property to the beneficiary(ies) on my death.

            Before my death, I have the right to revoke this deed.

Signature(s) of Owner(s) Making This Deed:

            _______________________________[(SEAL)]       _________________

                        (signature)                                                                   (date)

            _______________________________[(SEAL)]       _________________

                        (signature)                                                                   (date)

Acknowledgment

[insert acknowledgment here]

[back of form]

COMMON QUESTIONS ABOUT THE USE OF THIS FORM

            What does the Transfer on Death (TOD) deed do? When you die, the beneficiaries will become owners of the property described in the TOD deed, subject to any debts or liens or mortgages (or other encumbrances) you have put on the property during your lifetime. Probate is not required. The TOD deed has no effect until you die. It can be revoked at any time. If you transfer the property to someone else during your lifetime, the beneficiary under the deed will not receive it.

            How do I make a TOD deed? Complete this form. Have it notarized. Record the form in each [county] where the property is located. The form must be notarized and recorded before your death or it has no effect.

            How do I find the “legal description” of the property? This information may be on the deed you received when you became an owner of the property. This information may also be available in the office of the [county recorder] for the [county] where the property is located. If you are not absolutely sure, consult a lawyer.

            How do I “record” the TOD deed? Take the completed and notarized form to the [county recorder] for the [county] where the property is located. Follow the instructions given by the [county recorder] to make the form part of the official property records. If the property is in more than one [county], you must record the deed in each [county].

             Can I revoke the TOD deed if I change my mind? Yes. The TOD deed is revocable. No one, including the beneficiaries, can prevent you from revoking the deed.

            How do I revoke the TOD deed? There are two ways to revoke a recorded TOD deed: (1) Complete and notarize a revocation form, and record it in each [county] where the property is located. (2) Complete and notarize a new TOD deed that disposes of the same property, and record it in each [county] where the property is located. In addition, you can transfer the property to someone else during your lifetime.

            I am being pressured to complete this form. What should I do? Do not complete this form under pressure. Seek help from a trusted family member, a friend, or a lawyer.

             Do I need to tell the beneficiaries about the TOD deed? No, but it is recommended. Secrecy can cause later complications and might make it easier for others to commit fraud.

            What if I name more than one beneficiary? You may name more than one beneficiary. Unless you specify otherwise, the primary beneficiaries (or if none survives you, the alternate beneficiaries) will become co-owners in equal shares

             SECTION 302. FORM OF REVOCATION.

            A document substantially in the following form satisfies the requirements for a form of revocation under this [act].

[front of form]

REVOCATION OF TRANSFER ON DEATH DEED

Notice to Owner

            This revocation must be recorded before you die or it will not be effective. This revocation is effective only as to the rights of owners who sign this revocation.

Identifying Information

            Owner(s) of Property Making This Revocation

            ___________________________      _______________________________

                        (name)                                                            (mailing address)

            ____________________________    _______________________________

                        (name)                                                            (mailing address)                    

Legal Description of the Property:

            ___________________________________________________________

            ___________________________________________________________

            ___________________________________________________________

Revocation

            I revoke all my previous transfer on death deeds affecting this property.

Signature(s) of Owner(s) Making This Revocation

            _______________________________[(SEAL)]       _________________

                        (signature)                                                                   (date)

            _______________________________[(SEAL)]       _________________

                        (signature)                                                                   (date)

Acknowledgment

[insert acknowledgment here]

[back of form]

COMMON QUESTIONS ABOUT THE USE OF THIS FORM

             How do I use this form to revoke a Transfer on Death (TOD) deed? Complete this form. Have it notarized. Record the form in each [county] where the property is located. The form must be notarized and recorded before your death or it has no effect.

            How do I find the “legal description” of the property? This information may be on the TOD deed. It may also be available in the office of the [county recorder] for the [county] where the property is located. If you are not absolutely sure, consult a lawyer.

            How do I “record” the form? Take the completed and notarized form to the [county recorder] for the [county] where the property is located. Follow the instructions given by the [county recorder] to make the form part of the official property records. If the property is located in more than one [county], you must record the deed in each [county].

            I am being pressured to complete this form. What should I do? Do not complete this form under pressure. Seek help from a trusted family member, a friend, or a lawyer.

The proposed draft is well considered and seems to address most, if not all, issues that we contemplate. We anticipate that the review process will engender many changes from this initial draft, some of which are likely to be substantive. However, considering the dearth of common law guidance with respect to enhanced life estate deeds, this proposal is a very promising beginning and encouraging.

Dirt Tales From the Deed Vault - Episode 14
John Dillard, Vice President and Legal Counsel

                  This month’s edition of  Dirt Tales continues our examination of the Covered Risks provisions in the ALTA title policies.  The facts in each series are true occurrences, except for the names of the parties involved which have been changed.  

                  Steve Subdivider had found a large mountain tract of property that he wanted to subdivide and develop.  When he was shown the property by his real estate agent, he was taken along a scenic road that ran at times with a stream with waterfalls, a beautiful pasture and wildflowers.  The scenic route sealed the deal for him and he could count the sales in his mind the beautiful drive to the property was going to bring.

                  After closing he got right to work developing the tract.  A couple of weeks after starting he received a letter from the U. S. Forest Service advising him to cease and desist utilizing the scenic road.  He took the letter to his closing attorney who pulled out Steve’s survey and the tax map of his property.  Sure enough, the scenic road Steve loved was a U. S. Forest Service road over which Steve did not have the right to use.  The access to his property was through a winding narrow back road that was not capable of being widened and wasn’t suitable for two-way traffic to and from his development.  There was not going to be any way he was going to be able to sell the lots now.  In his mind, the tract was now worthless.  Since he had gotten title insurance that did not make any exception for access and since he didn’t have good access Steve filed a claim with the title company.

                  The title company denied his claim citing he did in fact have access to his property over the easement that had been granted in his chain of title over the narrow and windy road.  The question for us to consider is what kind of access a title insurance policy insures.  We’ll begin by taking a look at what the title policy says about access. 

The 2006 ALTA Owner’s Policy, on the face page, under “Covered Risks” the policy provides:

COVERED RISKS SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B, AND THE CONDITIONS, BLANK TITLE INSURANCE COMPANY, a Blank corporation (the “Company”) insures as of Date of Policy and, to the extent stated in Covered Risks 11, 13, and 14, after Date of Policy, against loss or damage, not exceeding the Amount of Insurance, sustained or incurred by the Insured by reason of:

1. Title being vested other than as stated in Schedule A, and

.

.

4.            No right of access to and from the Land.

The 1992 policy contains similar language.   Although the basic Owner’s and Loan policies insure access under the Covered Risks provision they do not insure the quality of access.   Title insurance insures legal access, not actual or practical access.  This doctrine of insuring legal access as opposed to the quality of access was set out in Marriott Financial Services v. Capitol Funds, Inc.288 NC 122 (1975).  In Marriott, the Supreme Court of North Carolina reversed an order dismissing an access claim because the insured had ‘pedestrian' access only to a major Road rather than vehicular access, citing that pedestrian access was legal access.  The Marriott rule has been cited in other state court decisions regarding what constitutes insurable access. 

            As interpreted in the Marriott case, and other similar cases, title insurance will only insure access in terms of the legality of the granting easement and not the quality of the access.