Please note this post is specifically about Oklahoma Transfer on Death Deeds. As with all of our blog posts, this is general information about an area of Oklahoma law. Please consult a licensed Oklahoma attorney to discuss the particulars of your situation.
Here at Gossen & Schaller, PLLC, we are proud to be a Wealth Counsel member firm and to provide our clients with a wide range of sophisticated estate planning tools and strategies. One of the primary reasons that people seek out attorneys for estate planning help is to structure their assets in a way that will allow their heirs to avoid the costs of probate proceedings in court. Placing real estate and other assets subject to probate into a trust is one of the standard means by which attorneys achieve this goal for clients. In 2008, the Oklahoma Legislature enacted a law allowing for an alternative means of transferring property to heirs while avoiding probate: the transfer on death dead (hereinafter, referred to as “TODD”).
The TODD appears to be a simple device. A Grantor, the person who currently owns the property, executes a TODD in favor of a Grantee, the beneficiary the Grantor wants to receive the property, and the instrument is filed of record with the local County Clerk where the real estate is located. The TODD must be notarized and also executed by two witnesses. This all seems simple enough in theory, but in practice, executed TODDs have led to title problems.
Historical Issues with ToDDS
The first unexpected issue that came up with TODDs is that a Grantee Beneficiary takes the real estate subject to the liens and encumbrances already attached to the property. This means if you’re the beneficiary on a TODD granting property that is subject to three mortgages and two tax liens, you take the property subject to those mortgages and liens. In a traditional estate, real estate subject to liens might be sold out of the estate, the liens paid off, and then any remaining proceeds distributed according to the estate. In other cases, the proceeds of a life insurance policy or other liquid asset might be used to pay off debt against real estate that is intended to stay in the family. With a TODD, these aren’t options. Grantee Beneficiaries who did not want to take title to land conveyed by TODD because of liabilities attached to the property, tax concerns, or because the beneficiary would be declaring bankruptcy. What happens if the Grantee Beneficiary refuses to take the property?
Refusal by grantor beneficiaries led to issues with County Offices. Many County services are funded by the assessment and collection of Ad Valorem taxes on real property. If a property owner dies after conveying the property by TODD, but the Grantee Beneficiary refuses to accept the property, who does the County Assessor levy Ad Valorem taxes against?
These collective issues led to a series of revisions to the Oklahoma statutes governing TODDs. For a brief period of time, a Grantor Beneficiary was deemed to be vested in the real estate conveyed by the TODD unless they filed a disclaimer or rejection of the TODD with the local County Clerk. There was a time limit imposed on filing these disclaimers, and if a disclaimer was not filed within a certain number of months following death, then the property was vested in the Grantee Beneficiary. This approach still met with some of the same problems. People were often not aware that they would be stuck with real estate and its liens if they didn’t file a disclaimer within a certain period of time, so the legislature set out to revise the statute again. This time requiring a beneficiary to file an affidavit to accept the property within nine months, or the TODD essentially fails and the real property passes through the estate of the Grantor.
Current Issues with Oklahoma TODDs
Currently, Oklahoma law requires the beneficiary grantee of a TODD to file an affidavit accepting the real estate within 9 months of the grantor’s date of death. If no affidavit is filed, the TODD effectively fails and the real estate returns to the Grantor’s estate. If a Grantor wants to leave property by TODD, they need to make sure the Grantee Beneficiary is aware of the TODD so that they file the affidavit within that 9-month window.
Not only must the affidavit be filed within the 9-month window, it must also contain certain information dictated by law. Per Title 58, § 1252 (C) of the Oklahoma Statutes, the affidavit must include the following items: (1) Verification of the record owner’s death by attaching the Grantor’s death certificate; (2) Whether the record owner and the designated beneficiary were married at the time of the record owner’s death; and (3) a legal description of the real estate. Having reviewed dozens of these affidavits as a title examiner, in Ryan’s experience, most of them leave off item 2. Most TODDs are executed from an elderly parent to one or more of their children as a way to avoid more costly estate planning. It probably does not occur to most children that they need to affirmatively state that they were not married to their deceased parent, but the Oklahoma statute requires it for the affidavit to be valid.
There is currently no guidance from the legislature or the Oklahoma courts on what to do if a beneficiary leaves off item (2) of their affidavit but everything else is correct. At the time of this writing, I’m aware of a small number of attorneys and title companies which will take the position that as long as an affidavit, whether correct or not, was filed within the 9-month period, then they will accept a correction of that affidavit after the period expires. This appears to be a minority position, and that most other attorneys and title companies will outright reject the defective acceptance affidavit and show the property as vested in the estate and require a probate.
If failure to file an affidavit and failure to meet the requirements of the affidavit, weren’t problems enough, the drafters of Oklahoma’s TODD legislation failed to consider that families and life are often complicated. The TODD works best in the simplest situations: a single person owns a piece of real estate and they have one beneficiary they want to receive that property after they die. Often though, Grantors with more complicated situations try to force a TODD to work in their scenario, and the results are often problematic.
Oklahoma law is also silent on this extremely common scenario: Grantor executes a TODD in favor of his three children. One child executes an affidavit accepting the TODD within 9 months of the Grantor’s death. The affidavit includes all of the necessary information but is only executed by one of the three Grantee Beneficiaries. Is the affidavit valid for all three? Is it valid for one beneficiary but not the other two? Does the entire TODD fail if not all of them affirm, or does that one signing beneficiary succeed to a 1/3 interest while a 2/3 interest reverts to the state?
Congratulations! If you’ve read this far, then you now know what it feels like to sit in a meeting of the Title Examination Standards Committee. TODDs have dominated our discussions at these meetings over the last few years and the brightest minds in Oklahoma title law cannot come to a consensus on some of these questions, and the truth is, until Oklahoma’s Supreme Court or Court of Civil Appeals hears a case that poses these questions, we won’t have a firm answer.
For all of these reasons, Oklahoma’s TODD is not a one size fits all estate planning tool. In limited scenarios with one Grantee Beneficiary who is aware of the instrument and a lawyer who knows how to correctly draft the Beneficiary Affidavit, they can save time and probate expense, but they are not a good substitute for a full estate plan and trust when you have multiple beneficiaries or you have beneficiaries who may not want the property or the liens attached to it.
A TODD is just one of many Estate Planning tools. If you are the beneficiary on a TODD and the grantor has died, please consult an attorney or obtaining a beneficiary affidavit. At Gossen & Schaller we are happy to sit down with you and discuss your assets and planning needs in more detail to determine the best estate planning solutions for you.