An estate planning tool perhaps as yet unnoticed by estate and trust litigation counsel recently was enacted by the General Assembly. New to Virginia practice is the “transfer on death deed.” This form of conveyance permits the grantor of such a deed to designate a person to receive property in a transfer on death deed without creating any legal or equitable property rights in the designated beneficiary until the death of the transferor. The conveyance passes real property interests at the transferor’s death by operation of law, thus falling outside of the probate process and, generally, the provisions of a transferor’s lifetime trust. Although this planning device may make sense in limited settings, its piecemeal application in estate planning could give rise to a variety of unintended consequences in later litigation.
One such consequence is the passage of title to property without any form of accounting or oversight under the aegis of fiduciary duties applicable to trustees. Although creditor’s claims, statutory allowances, and estate administration expenses theoretically may be claimed against such property, the lifetime recordation of a transfer of death deed could cause real property quietly to slip forever into the hands of a designated beneficiary or alternate beneficiary. Under the Virginia Code, after a transfer on death deed is recorded, “it can be revoked only by an effective revocatory instrument recorded prior to the death of the transferor and may not be revoked by a revocatory act taken against or on the original or a copy of the recorded transfer on death deed.”
The statutory scheme contains a publicly available form for such deeds. A compelling feature of the form is a provision for alternate beneficiaries, generally absent in garden-variety survivorship deeds. The real distinction between transfer on death deeds and other deeds that convey current property interests, however, stems from the manner in which real property interests openly intended to be conveyed paradoxically may remain obscured.
Because there is no present transfer of ownership, and the real property in question remains owned by the transferor until death, family members may not notice or become aware of the transfer on death deed’s existence or even its prior recordation. The prior recordation of a transfer on death deed may affect later legal claims. Post-mortem claims alleging undue influence or constructive fraud, for example, may be barred even under a “discovery” statute of limitation due to the public nature of the earlier act of recording such a deed. The potential later inability to challenge or dispute a transfer on death deed’s past execution, in the face of its prior public recordation, is an uncertain feature of this new estate planning device.
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