Don't Let a Simple Plan Get In The Way of Properly Insuring Your Home

By: Christopher Burns , Lloyd Stern , Maria Plese | June 15, 2021

Available to Minnesota residents since 2008, Transfer on Death Deeds (often referred to by the acronym, TODDs) are an estate planning tool used by many and may allow real property owners to effectively avoid a probate court proceeding without transferring the property through other means.

In general terms, a TODD is a form of deed that once executed and properly recorded by an owner or owners (the “grantor or grantors”) automatically passes ownership of real property to the beneficiary designated in the TODD upon the death of the grantor(s). Because a TODD is only effective upon the death of the grantor(s), no ownership interest in the property is created in the grantee beneficiary until the grantor’s death. The facts that the grantor(s) retains full rights of ownership during lifetime (including the right to otherwise sell or transfer the property) and may also revoke the TODD at any time prior to death, make the TODD a very attractive and easy to use estate planning tool.

With a TODD, the grantee beneficiary does not hold any present interest in the real property and has no ability to pledge or transfer it against the grantor owner’s wishes; thus, the property is not subject to encumbrances by creditors of the grantee beneficiary, and the grantee beneficiary cannot be divested of a share of his or her interest as a result of divorce. Simply put, the owners remain the sole owners of the property up until the moment of his, her, or their deaths.

A big benefit of a TODD is that it typically is much less expensive than other forms of real property transfers and remains one of the main reasons why many real estate owners choose to use it.

While a transfer on death deed can be a useful estate planning tool, individuals and planners alike must be mindful of avoiding some of the traps and potential pitfalls that the use of a TODD may cause.

Upon the death of a grantor owner, title to the real property is automatically transferred to the grantee beneficiary named in the TODD; however, what may sound like a seamless and efficient transfer of ownership just might turn into a serious headache for the new owner without the proper planning in place.

In the case of Strope-Robinson v. State Farm Fire & Cas. Co., recently affirmed by the Eighth Circuit Court of Appeals, David Strope signed and recorded a transfer on death deed to his house in 2017. The TODD named his niece as the grantee beneficiary to receive the property upon his death. Just a few days later, David died. Unfortunately for David’s niece, within a week after David’s death, David’s ex-wife set the house ablaze.

David’s niece brought a claim against State Farm Insurance for the value of the house on behalf of David’s estate. However, since ownership had automatically passed to her at David’s death, State Farm refused to pay the claim.

The legal argument presented by State Farm was that ownership of the house passed to David’s niece at the moment of David’s death, and therefore the estate did not have an “insurable interest” in the house at the time it was destroyed.

As illustrated by this unfortunate case, it is crucial that individuals using TODDs make sure they check with their insurance provider to have the grantee beneficiary added to their real property insurance policies or notify the grantee beneficiary that they will need to secure their own insurance promptly after the owner’s passing to make certain no lapse in coverage will occur. Proper planning is key.

At Henson Efron, our attorneys have extensive knowledge and experience in tax, trusts, and estate planning. We, in collaboration with your professional advisors, can help ensure your plan continues to align with your intended goals.

Christopher Burns
My clients receive my undivided attention. I focus on learning your story and understanding your specific needs. With a broad base of legal knowledge, I will thoughtfully consider your issues, identify your options, and strategically use the right tools to accomplish your goals. With over 20 years of experience, I bring considerable expertise in the following areas: estate planning: planning and preparation of wills, revocable...

Lloyd Stern
I have deep experience in the fiduciary administration of complex trusts and estates. For over 25 years, I have administered trusts and settled hundreds of high value estates involving complicated tax, accounting and valuation issues as well as managing the distribution of assets. I have gained a thorough understanding of the estate/trust business, and I know what works. In addition, I am proficient in alternative...

Maria Plese
Truly understanding my clients’ needs and objectives are key to the development of a strategic and meaningful plan, and fostering a relationship they can trust for the long term. From creating an effective estate plan to helping clients navigate estate and trust administration matters, I assist with: preparation of wills and trusts, healthcare directives, and powers of attorney drafting trusts for minors, charitable trusts, and...