Tex Davis, 79, is a widower and the father of three children. He owns a one-year-old Lexus worth $50,000.00. He also owns a recreational vehicle, worth approximately $72,000. Tex wants to divide his estate equally among his three children. Tex said he didn’t want his children to have to go through the delay and expense of probate to receive the proceeds from these two assets and he wonders if there is an alternative.
The Texas legislature addressed the issue of transfer of vehicles upon death in the last session and, as of September 1, 2017, vehicle owners can transfer these assets outside of probate. The provisions of Texas Estates Code (TEC) §§ 115.001-115.006 establish the means for an individual to make a transfer on death (TOD) authorization on title applications by naming a sole person to whom the vehicle will be transferred upon the owner’s death. This means Tex can transfer each vehicle to one child, but not to the three of them together.
The owner does not have to get the acceptance of the beneficiary prior to transfer, but the recipient can disclaim the gift after the owner’s death, as provided in Chapter 240 of the Texas Property Code.
Under the TOD, the owner retains the right to sell the vehicle and the right to revoke the designation at any time before death. The beneficiary of the designation obtains no rights during the owner’s lifetime. The transfer does not affect the interest or right of creditors with regard to the vehicle, whether the debt is incurred prior to or after the TOD designation.
Better yet, the owner making this designation does not have to redo his or her will if a provision in the will contradicts the TOD designation. The TOD overrides the will with regard to the vehicle transferred by the title designation.
If the title of a vehicle is held by joint owners, the TOD designation would give right of survivorship ownership to the survivor, with the TOD beneficiary ownership upon the death of the last owner to die.
If the beneficiary of the TOD does not survive the owner of the vehicle by more than 120 hours, and the beneficiary is a descendant of the owner or the owner’s parents, the gift passes to the descendants of the designated beneficiary. This could create a practical problem if the descendants are minors, incapacitated persons or there are multiple descendants.
The statute does not designate an owner of community property as an automatic “joint owner.” Nor does the statute require spousal consent to a TOD designation. That means that it would be possible for one spouse to purchase a vehicle with community funds but take title in his or her name only. If the title taking spouse creates a TOD in favor of someone other than the other spouse, the statute does not address whether the third party gains title free and clear of any claim of the community.
Because it is not clear whether the surviving spouse would have a community property claim against a third party beneficiary, it is not recommended that such a designation be made without permission of one’s community partner.
TEC §115.004(4) stipulates that the TOD does not interfere with either the owner’s or the beneficiary’s eligibility for any form of public assistance, most importantly, Medicaid. As an additional benefit to Medicaid recipients, the transfer takes the vehicle out of the Medicaid recipient’s estate and, thereby, protects the value of the vehicle from being subject to recovery under the Medicaid Estate Recovery Act (MERC).
Tex may or may not find the TOD statute helpful for his estate planning since he wants to divide his estate equally among his three children. The statute limits him to a sole beneficiary for each vehicle. The values of the two vehicles will not remain static, making it difficult for him to access how to divide other property to equalize distributions of his property following his death. It remains to be seen how often this relatively new statute can be employed as an effective estate planning tool.
Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives in beautiful Somervell County, near Chalk Mountain.