1 To: New Jersey Law Revision Commission From: Staff Re: Uniform Real Property Transfer on Death Act Date: March 8, 2010 OVERVIEW OF URPTODA MEMORANDUM In July 2009, the National Conference of Commissioners on Uniform State Laws ( NCCUSL ) approved and recommended for enactment in all states the Uniform Real Property Transfer on Death Act (URPTODA). This uniform law provides a mechanism for the nonprobate transfer of real property, and is derived from the Uniform Probate Code (UPC), which allows for nonprobate transfer on death provisions in various instruments, including, inter alia, an insurance policy, contract of employment, mortgage, promissory note, deed of gift, marital property agreement or other written instrument of a similar nature. See UPC As stated in URPTODA s Prefatory Note, a growing number of jurisdictions have implemented real property transfers upon death by enacting statutes that provide an asset-specific mechanism for the nonprobate transfer of land. Thirteen states have enacted statutes that permit an owner of an interest in real property to execute and record a deed by which the owner identifies the beneficiary or beneficiaries who will succeed to the property at the owner s death all predating the URPTODA. 2 During the owner s life, the beneficiaries have no interest in the property and the owner retains full power to transfer or encumber the property or to revoke the deed. The majority of states call the document a transfer on death (TOD) deed. Ohio uses a document called a transfer on death designation affidavit to achieve this purpose. Arizona, Arkansas, Colorado and Montana call the document a beneficiary deed. NCCUSL s stated purpose is to bring uniformity and clarity to the use and operation of this emerging form of nonprobate transfer by enactment of the URPTODA. Interestingly, as of the date of this memorandum, none of the thirteen states that have already adopted statutes providing for nonprobate transfers of real property at 1 Section 6-101, part of what is now known as the Uniform Nonprobate Transfers on Death Act (1991), provides: A provision for a nonprobate transfer on death in an insurance policy, contract of employment, bond, mortgage, promissory note, certificated or uncertificated security, account agreement, custodial agreement, deposit agreement, compensation plan, pension plan, individual retirement plan, employee benefit plan, trust, conveyance, deed of gift, marital property agreement, or other written instrument of a similar nature is nontestatmentary. This subsection includes a written provision that: (1) money or other benefits due to, controlled by, or owned by a decedent before death must be paid after the decedent s death to a person whom the decedent designates either in the instrument or in a separate writing, including a will, executed either before or at the same time as the instrument, or later; (2) money due or to become due under the instrument ceases to be payable in the event of death of thepromisee or the promisor before payment or demand; or (3) any property controlled by or owned by the decedent before death which is the subject of the instrument passes to a person the decedent designates either in the instrument or in a separate writing, including a will, executed either before or at the same time as the instrument, or later. 2 The states are Missouri (1989), Kansas (1997), Ohio (2000), New Mexico (2001), Arizona (2002), Nevada (2003), Colorado (2004), Arkansas (2005), Wisconsin (2006), Montana (2007), Oklahoma (2008), Minnesota (2008), and Indiana (2009).
2 death (nor any other state) have adopted the URPTODA, although the URPTODA has been introduced in Oklahoma s House of Representatives. The URPTODA has also been introduced in the House of Representatives of Hawaii (where it was also introduced to the Senate), Nebraska, Utah, and South Dakota. SUMMARY OF KEY PROVISIONS OF THE URPTODA The uniform act defines a handful of key terms. Beneficiary is defined as a person that receives property under a transfer on death deed and property is defined as an interest in real property located in this state which is transferable on the death of the owner. A transferor means an individual who makes the TOD deed. The act expressly limits the ability to make the TOD deed to individuals and not corporations or other entities, although the TOD deed may be made by an agent on behalf of a principal, in which case the agent, and not the principal, is the transferor. The URPTODA states that it does not affect any method of transferring property otherwise permitted under state law. Thus, for example, it would not affect the current ability to transfer real property with a retained legal life estate interest. An example of this type of transfer is where A conveys Blackacre to B while reserving A s right to remain in possession of the property until A s death. Such a conveyance is an irrevocable transfer by A of a future interest to B. Without affecting the ability to make such a transfer, the URPTODA would permit A to execute, acknowledge and record a TOD deed for Blackacre that names B as the designated beneficiary. The deed, if unrevoked, would transfer possession to B at A s death only if B survives A, but would not grant B any interest in the property during A s lifetime. Issues of revocability and the failure of a beneficiary to survive the grantor are of paramount importance as discussed below. The URPTODA clearly provides that the TOD deed is nontestatmentary, meaning that the transfer contemplated by the deed occurs by operation of law and outside the probate process 3. Although the TOD deed is not a will, the capacity required to make the TOD deed and a will are the same. A TOD deed is unaffected by the transferor s subsequent loss of capacity. A form of deed is provided in an optional section (see section 16) 4. The requirements for the TOD deed are set out in Section 9. Basically the TOD deed must contain the same elements and formalities as are required for a properly recordable inter vivos deed under state law, except for the present intention to convey. The TOD deed must state that the transfer to the designated beneficiary is to occur at the transferor s death. 5 Consideration for the transfer is not necessary, nor is acceptance by or notice to 3 The URPTODA does not affect the fact, as in current law, that property that does not go through probate may still be included in the grantor s taxable estate. 4 NCCUSL s comment mentions that ten of the thirteen states with transfer on death deed statutes provide a statutory form for the deed. 5 Except, however, a distinction should be made if the transferor and the grantor or not the same person, in which case, it is the death of the grantor that effects the date that the TOD deed becomes effective. 2
3 the designated beneficiary required during the transferor s lifetime. Most important, however, the deed must be recorded before the transferor s death or it is not valid. As the legislative note to Section 9 states, because the TOD deed has no present effect and is revocable, the deed should be identified clearly as a TOD deed when it is indexed. One state uses a grantor-grantee index that is fully searchable online. How easily New Jersey county clerks could adapt the indexing of these deeds into current recording and indexing systems should be considered. A TOD deed may designate more than one beneficiary or contingent beneficiaries. (Section 5.) Section 13 more fully addresses the effect of the TOD deed at the transferor s death, covering a broad set of occurrences. Section 13 states that the interest of a designated beneficiary that fails to survive the transferor lapses and concurrent interests are transferred in equal and undivided shares with no right of survivorship. It also states that, subject to state law, a beneficiary takes the property subject to all conveyances, encumbrances and other liens to which the property is subject at the time of the transferor s death, including those that occur after the TOD deed. Moreover, it provides that a TOD deed transfers property without covenant or warranty of title, even if the deed contains a contrary provision. Most statutes that address the issue provide that if the beneficiary predeceases the grantor, and no contingent beneficiary is named, then the transfers lapses. At least one state, Montana, allows successor beneficiaries, so long as the deed states the condition upon which the interest of the successor would vest, and permits a conveyance to become part of the estate of the grantee beneficiary if the beneficiary predeceases the owner. Wisconsin s statute mandates that if there is no beneficiary or no issue of a predeceased beneficiary who would take under the state intestacy laws, then the real property interest passes to the estate of the deceased sole owner or the estate of the last to die of the multiple owners. The death of the owner/grantor in many state statutes must be proved by affidavit or certificate of death. The uniform law does not address proof of the transferor s death. As already stated, the TOD deed is revocable prior to the grantor s death, even if the deed or another instrument contains a contrary provision. (Section 6). The Comment to this section explains that the transferor s power to revoke the deed is a fundamental feature of the deed under the URPTODA and that this section is framed as a mandatory rule in order to prevent an off-record instrument from affecting the deed s revocability and to protect the transferor s later wish to revoke. Section 11 provides the methods for revocation of the TOD deed, which include revocation by instrument and revocation by act. The deed may be revoked by an instrument of revocation that expressly revokes the deed, a subsequent TOD deed that expressly revokes the earlier TOD deed, or an inter vivos deed that expressly revokes the TOD deed, in whole or in part. 6 6 Notably, the NCCUSL s commentary makes a distinction between revocation, which renders an instrument void, and ademption by extinction, which means that the transfer of the property cannot occur 3
4 A recorded TOD deed may not be revoked by a revocatory act performed on the deed such as burning, tearing or destroying the deed or any part of it. The Comment to this section explains that revocation by a will is not recommended because certainty of title is essential and this certainty would be difficult, and in many cases impossible, to achieve if an off-record instrument, such as the grantor s will, could revoke a recorded transfer on death deed. An individual s agent may revoke a TOD deed to the extent permitted by other law, such as the Uniform Power of Attorney Act. Section 7 also provides an optional form of revocation. The comment notes that six of the thirteen states with TOD deed statutes provide a statutory form of revocation. Finally, section 14 permits the beneficiary to disclaim all or part of the interest conveyed by the TOD deed as provided by either state law or the Uniform Disclaimer of Property Interests Act. Additional sections pertain to liability for creditor claims and statutory allowances. These sections, as well as other general provisions regarding application and construction of the law, should be reviewed by experts in estate planning. ANALYSIS OF NEW JERSEY AND OTHER STATE LAWS Currently, an owner of real property in New Jersey may provide in the owner s will for the conveyance of the property at the time of the owner s death. The property may be transferred to a real estate trust or a living trust. If an owner holds real property with a spouse as a tenant by the entirety or with a co-owner as a joint tenant with a right of survivorship, the property will be transferred by operation of law to the named survivor at the time of the death of the owner. One may ask whether a TOD deed is even necessary considering these mechanisms to transfer real property at death. Staff believes the TOD deed serves a useful purpose by permitting a relatively simple, straightforward nonprobate transfer that is cost effective and easy to accomplish, but further evaluation is necessary. It is important to note that New Jersey has adopted the Uniform TOD Security Registration Act, N.J.S. 3B:30-1 et seq., which gives owners of securities who wish to arrange for non-probate transfer at death an alternative to the joint tenancy form of title. The adoption of this uniform law, also contemplated by the UPC, for the nonprobate transfer of securities gives further support for creation of a TOD deed in New Jersey. However, this raises the issue of whether New Jersey should adopt the URPTODA or merely enact a TOD deed statute that adopts an amalgam of the best provisions of other state laws. Staff has concerns with some of the current language of the URPTODA, especially in light of state statutes that contain clearer and in some cases, more comprehensive language, as set forth below. In addition, it is noteworthy that no states because the property is not owned by the transferor at death. Though the act does not provide for ademption, NCCUSL further notes that the Joint Editorial Board for Uniform Trust and Estate Acts has begun a conversation on whether the Uniform Probate Code s provisions on ademption should be extended to nonprobate transfers, thus harmonizing the treatment of wills and will substitutes on this aspect of the law. This act accepts the well recognized distinction between revocation and ademption in order to leave the door open for such future harmonization, which would effectuate the presumed intention of nonprobate grantors. 4
5 have yet adopted the URPTODA and only a handful have introduced it in their legislatures. INTERACTION WITH JOINT TENANCIES: Various state statutes do a much better job in Staff s view of addressing the interaction of joint tenancies and the TOD deed than does the URPTODA. The URPTODA s mention of the effect of joint tenancies is tucked into one subsection of a larger section that addresses the effect of TOD deeds generally. See section 13(c). This section, which Staff finds awkwardly drafted and thus confusing, states that: If a transferor is a joint owner and is: (1) survived by one or more other joint owners, the property that is the subject of a transfer on death deed belongs to the surviving joint owner or owners with right of survivorship; or (2) the last surviving joint owner, the transfer on death deed is effective. Minnesota s statute (Sec (6)), for example, is clearer. It provides that if an interest in real property is owned by joint tenants, a TOD deed executed by all of the owners effectively transfers the interest conveyed only after the death of the last surviving grantor owner. However, if the last surviving joint owner does not execute the deed, the deed is void and ineffective to transfer the interest. It further provides that an estate in joint tenancy is not severed or affected by a subsequent TOD deed, but the right of a surviving joint tenant who does not execute the deed prevails over a grantee beneficiary named in the deed unless the deed specifically states that it severs the joint tenancy ownership. Nevada s statute ( (3)) provides that if the owner of property subject to the TOD deed holds the interest in the property as a joint tenant with right of survivorship, and the deed includes a conveyance of the interest from each of the other owners, the deed becomes effective on the date of the death of the last surviving owner. If the deed does not include such a conveyance, the deed becomes effective on the date of the death of the owner who created the deed only if the owner is the last surviving owner. Similar provisions are in the Montana statute ( (4)). Staff recommends that, if adopted, a New Jersey version of URPTODA include a provision dedicated exclusively to interaction with joint tenancies using comprehensive language resembling that used in the Minnesota, Montana and Nevada statutes. See also Indiana s Transfer on Death Property Act, section IC (e). PROVIDING FOR RECORDING OF THE TOD DEED: There are two distinct issues to be considered regarding the URPTODA s requirement of deed recording. One issue is whether, in order to be valid under a New Jersey version of URPTODA, a TOD deed should be recorded at all and, if so, when. The second issue is whether lodging for record of the document rather than indexing should be required. Every state statute (and the URPTODA) requires recording of the TOD deed before the grantor s death in order to make it valid. The URPTODA requires that the deed be in recordable form, which requires that the deed be acknowledged. However, there is no such requirement for any other type of deed under New Jersey law (although 5
6 an unrecorded deed is ineffective as against third parties) nor is there a requirement that a will must be recorded in order to be valid under New Jersey law 7 (although wills may be recorded for specific purposes.) Further, a last will and testament need not be acknowledged unless the testator wishes the will to be self-proving. Even holographic wills are permissible under the New Jersey probate code. Staff questions whether creating a TOD deed, which may be revoked under state laws and the uniform law, should be made more difficult than creating a will. Moreover, third parties may be confused if clerks offices and registrars index deeds capable of subsequent revocation. One option is to require that the TOD deed be recorded, along with the grantor s death certificate, by the grantee beneficiary, or the preparer, at the time of its use. Arguably, this could make the deed more susceptible to forgery or fraud, the very problem recording was intended to prevent 8, but perhaps this could be handled by requiring an affidavit from the grantee, also to be recorded. Ohio s statute requires criminal penalties for any person who knowingly makes any false statement in a transfer on death designation affidavit (Ohio s version of a TOD deed) and requires that the beneficiary record an affidavit of confirmation in order to effectuate the transfer of the real property subject to the TOD instrument. Nevada s statute also requires a death of grantor affidavit to be recorded upon the death of the last grantor of a TOD deed. Indiana s statute voids any beneficiary designation or revocation that is procured by fraud, duress, undue influence, or mistake or because the owner lacked capacity. Notably, the comment to section 7 of the URPTODA, pertaining to the nontestamentary nature of the TOD deed, permits giving a TOD deed that has not been recorded before the transferor s death (or a TOD deed that is ineffective for another unspecified reason) the effect of a testamentary instrument depending upon the applicable facts and the law of the jurisdiction. The second issue is not new to the Commission. As the Commission is well familiar from previous projects, it may be more realistic and fair to make lodging for record rather than recording itself the threshold event for validation of the deed. If lodging for record is used, however, it should be defined consistent with other Commission projects, i.e., that the TOD deed is lodged for record if it is delivered to the county clerk and the clerk marks the document with a date and time stamp or other mark indicating the date and time received. Staff also recommends inclusion in the statute of a penalty for falsification, forgery or fraud. CONTENT OF THE TOD DEED: Although a majority of states that have enacted TOD deed statutes provide a form of deed in the statute, whether a form of TOD deed is included in the statute should be 7 However, see N.J.S. 46:2A-5(d), which provides that an unrecorded nontestamentary instrument containing a power of appointment where the property is not under the control of a fiduciary shall be acknowledged and recorded. 8 NCCUSL comments that recording before death helps to prevent fraud by ensuring that all steps necessary to the effective transfer on death deed are completed during the transferor s lifetime. 6
7 consistent with the Commission s determination regarding forms of deeds in Title 46 generally. At the very least, Staff recommends that any New Jersey statute set forth specifically the elements required for a valid deed and that more should be required than the names of the grantor and the grantee beneficiary, and a description of the property. To better insure that the TOD deed not be used inappropriately (even if inadvertently) to convey property during the transferor s lifetime, a New Jersey statute should require the deed to expressly provide that: (1) consideration is not required for validity; (2) the deed does not transfer any ownership until the death of the last of the grantor owners to die; (3) the deed may not be given effect inter vivos under any circumstances and that to do so would violate the intention of the grantor that the transfer occur at time of death; (4) the deed is revocable prior to the grantor s death; (5) unless otherwise stated, the deed revokes all prior TOD deeds by the grantor which convey the same real property; (6) the beneficiary takes only the interest of the deceased owner on the date of death, subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens and other interests in effect at that time; and (7) in the event the original grantee fails to survive the grantor, the interest of a successor grantee then vests; and if there is no successor grantee, the conveyance to the original grantee becomes void or becomes part of the estate of the grantee beneficiary (whichever the grantor designates.) REVOCATION: Some states provide a form of revocation in their TOD deed statutes. The URPTODA also provides a form of revocation as an optional provision. Staff believes a form of revocation would be useful in a New Jersey statute. In addition, Staff recommends adopting language regarding revocation that is similar to the Arkansas or Arizona statute, for example. Arkansas clearly sets forth how to revoke the TOD deed. The language of the URPTODA is awkward. Obviously, the recording of a revocation document will depend on the Commission s decision about recording the deed itself. MISCELLANEOUS: NCCUSL recommends that states considering enactment of the act should consider extending to TOD deeds the probate rules governing antilapse, revocation by divorce and homicide, survival and simultaneous death, and the elective share of the surviving spouse. Staff will obtain input from members of the bar who practice trusts and estate law regarding these and other issues, as well as the effect of the TOD deed (section 13), the beneficiary s ability to disclaim all or part of the interest conveyed (section 14), and liability for creditor claims and statutory allowances (section 15.). Minnesota s statute provides that the TOD deed may be executed by a duly appointed attorney-in-fact pursuant to a power of attorney. Contrary to the URPTODA, Colorado s statute provides that no person who is an applicant for or recipient of medical assistance under Medicaid laws shall be entitled to such medical assistance if the person has in effect a beneficiary deed. These issues should be considered and addressed. 7