I. INTRODUCTION
The 2012 Legislature adopted the Nebraska Uniform Real Property Transfer on Death Act (Act). As a result, effective January 1, 2013, Nebraska law authorized a new method of transferring ownership of real estate upon the event of the death of the transferor – a revocable transfer on death deed (TOD deed).
A TOD deed allows an individual, upon death, to transfer real estate to his or her designated beneficiaries. Similar to other beneficiary designations, the TOD deed prevails over the terms of an individual’s last will and testament and allows the probate process to be avoided. Bankers should be cognizant of the effects of TOD deeds as customers will be utilizing such deeds as part of their estate planning in the future.
II. EFFECT OF TOD DEED DURING TRANSFEROR’S LIFETIME
While a TOD deed must be signed and recorded during the lifetime of an individual, the deed has no effect until the death of the transferor. During the transferor’s life, the TOD deed does not transfer any ownership interest and does not create an enforceable future interest in the designated beneficiaries. A TOD deed can be changed or revoked at any time during the lifetime of the transferor. The property may be sold or mortgaged during the lifetime of the transferor. The TOD deed is of no effect if the transferor does not own the property at the time of his or her death. In the event the property is owned in joint tenancy, the transferor must be the last surviving joint tenant.
III. CREATION AND RECORDING OF TOD DEED
To be effective, a TOD deed must include certain specific elements, including a statement that the transfer to one or more beneficiaries will occur at the transferor’s death. In addition, similar to the signing of a will, the owner must complete the instrument in compliance with specific statutory formalities. A TOD deed must be witnessed by two disinterested witnesses (any individual who acts as a witness to a TOD deed at the date of its execution and who is not a designated beneficiary or an heir, child, or a spouse of a designated beneficiary) who must attest to the transferor’s signature and a notary public must acknowledge the signatures of the transferor and the witnesses.
No action may be commenced to set aside a transfer on death deed, based on failure to comply with the requirement of disinterested witnesses more than ninety days after the date of death of the transferor or, if there is more than one transferor, more than ninety days after the date of death of the last surviving transferor.
Notwithstanding the provisions of the foregoing paragraph, an action to set aside a transfer on death deed, based on failure to comply with the requirement of disinterested witnesses in which the transferor or, if there is more than one transferor, the last surviving transferor, has died prior to May 8, 2013, shall be commenced by the later of (1) ninety days after the date of death of the transferor or, if there is more than one transferor, ninety days after the date of death of the last surviving transferor, or (2) ninety days after May 8, 2013.
Once the document is properly drafted and executed, the TOD deed must be recorded with the Register of Deeds within 30 days of the signing date and prior to the death of the transferor. It also must be recorded in each county where the property is located. If these requirements are not satisfied, the TOD deed will be invalid and of no effect.
IV. CHANGE OR REVOCATION OF TOD DEED
All TOD deeds are required by law to be revocable. Because beneficiaries of TOD deeds have no rights to the property during the transferor’s lifetime, they cannot prevent the transferor from revoking the deed. A TOD deed may be revoked by a subsequent TOD deed or an instrument of revocation meeting the formalities of execution described above. The TOD deed may also be revoked upon the transferor’s sale of the property during his or her lifetime.
Similarly, a transferor’s divorce would automatically revoke a TOD deed made in favor of the former spouse.
V. EFFECTIVE DEATH OF TRANSFEROR ON TOD DEED
Upon the transferor’s death, the TOD deed becomes effective to transfer the underlying property to the beneficiary – provided the transferor owned the property at the time of his or her death. In order for the beneficiary to take title to the real estate, the beneficiary must survive the transferor by at least 120 hours, unless the TOD deed provides for a different term of survival. If these conditions are satisfied, the beneficiary takes the property subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens, and other interests to which the property is subject at the transferor’s death. The beneficiary must then file the transferor’s death certificate with the Register of Deeds to document the transfer of title.
VI. GROWING CROPS
The Act allows the owner of farmland to include a conveyance of any growing crops to the beneficiary or another third party. Absent specific language to the contrary, any growing crops would be included in the estate of the transferor.
VII. IMPACT OF TOD DEED UPON CREDITORS
A TOD deed has no effect on the rights of secured or unsecured creditors of the transferor, regardless of whether the creditor has notice of the TOD deed.
The beneficiary of the TOD deed would take the property subject to any properly recorded deed of trust or other secured debt. Even though the property does not pass pursuant to probate, the beneficiary would remain liable for expenses of administration of the estate, including inheritance taxes and creditor’s claims. The Act allows unsecured creditors the same ability to reach the property as those non-probate assets owned by the decedent’s revocable trust.