Problems with Joint Tenancy Agreements and Transfer on Death Deeds

We receive a lot of requests for the creation of joint tenancies with rights of survivorship and transfer on death deeds (“TODDs”). We understand the reasoning behind these requests. Everyone wants to avoid probate and make the transfer of property to loved ones quick and easy.

We want to alert you to some problems associated with TODDs and joint tenancy agreements. If after knowing of these issues you still want us to prepare one of these documents, we will. We just don’t want you to be mis-lead about what these documents can and cannot do.

Texas title companies have major issues with both joint tenancy agreements and TODDs. That is important because virtually all sales, especially if there is financing, require title insurance. If a title company will not insure title, it is practically impossible to sell or finance property.

At least one major title company will not accept community-property right of survivorship agreements at face value, even with proof of death. They think the Texas Estates Code, which authorizes the agreements, offers little or no protection against the possibility of defects or irregularities in the agreement, such as forgery of the deceased spouse’s name, exercise of duress to obtain the deceased spouse’s participation, or incompetence of the deceased spouse when the agreement was made. The statutory protection against the effect of an unknown prior revocation by the deceased spouse is also a problem for them.

There is a judicial proceeding this title company requires before insuring title under a joint tenancy with survivorship rights agreement which is similar to a probate proceeding. Requiring a court proceeding destroys the usefulness of joint tenancy with rights of survivorship.

Other title companies take a less restrictive position, but still view the agreements unfavorably. For instance, another major title company will accept a joint tenancy agreement but require that:

1. The agreement must be in writing and signed by both joint tenants and recorded in the real estate records. This means that simply reciting in the deed that the property is conveyed to the buyers as “joint tenants with rights of survivorship” is not effective because typically only the seller signs the deed.
2. The agreement must clearly provide that the joint tenants intend that the property will pass to the survivor of them on the death of one of them.
3. After death, the survivor must sign an affidavit that they are the survivor under the joint tenancy agreement and reference the original agreement and where it was recorded.
4. The title company must be furnished with satisfactory evidence that the joint tenancy agreement was not revoked before the death of the deceased joint tenant.
5. The title company must review and approve the joint tenancy agreement.

Transfer on death deeds (“TODDs”) are even more disfavored by title companies. Most will not insure based on the deed. Under the statutes authorizing TODDs, property can be pulled back into the estate of the deceased for up to two years after death.

That causes heartburn for title companies and many will not insure during the two year statute of limitations period. Also, there is no warranty of title in a TODD which also causes problems for title companies.

We advise against using either the TODD or a joint tenancy agreement with survivorship provisions for the reasons outlined above. Even though some title companies will currently accept joint tenancy agreements without requiring a court proceeding, there is no assurance they will accept the agreement tomorrow. One major loss could mean that no title companies will accept them.

Until Texas statutes authorizing TODDs and joint tenancy with survivorship rights have been modified to persuade title companies to accept them, we believe it is not prudent to rely exclusively on these documents.

If you elect to use these documents in your estate planning, you should have a will which transfers title to these properties at your death as a back-up in case the documents are not acceptable to a title company.