Sometimes estate plans include a “transfer on death” deed as a way to transfer real estate at a property owner’s death. A recent opinion by the Eighth Circuit (Dawn Strope-Robinson v. State Farm Fire and Casualty) has made this estate planning tool a popular discussion topic in estate planning circles.
What is a “transfer on death” deed?
A transfer on death deed transfers the title of real estate to a beneficiary named on the deed. This allows a portion of the estate to bypass the probate process, provided the beneficiary outlives the transferor. During the lifetime of the owner, the transfer on death deed doesn’t affect the rights of the owner—he or she is free to sell, encumber or otherwise transfer the real estate during their life.
What triggered the lawsuit?
The Eighth Circuit court heard a case involving David Clair in Minnesota, whose estate plan included a transfer on death deed for his home, making his niece, Dawn Strope-Robinson, the beneficiary. Shortly after Mr. Clair died, triggering the transfer of ownership to Ms. Strope-Robinson, Mr. Clair’s ex-wife set the house on fire. Ms. Strope-Robinson filed a claim with the insurance company through which Mr. Clair had insured the house. The insurance company denied the claim, stating that, at the moment of death of the decedent (Mr. Clair), ownership of the property transferred to Ms. Strope-Robinson, who did not own the insurance policy on the house.
What was the Eighth Circuit court’s opinion?
The Eighth Circuit ruled in favor of the insurance company, finding that the transfer of property occurred at the moment of Mr. Clair’s death, that Ms. Strope-Robinson was not covered under the insurance policy and that Mr. Clair’s estate had no insurable interest. In short, Ms. Strope-Robinson lost the value of the property because, while the title to the property had transferred to her, the insurance policy on the property had not.
What does this mean?
Any attorney utilizing a transfer on death deed must counsel their clients regarding the risk of loss illustrated in this recent case. If you have a transfer on death deed as part of your estate plan, it would be a good idea to contact your insurance carrier to determine potential options for coverage available to your beneficiaries on your transfer on death deed.
If you would like more information about transfer on death deeds and what best suits your situation for estate planning, talk to a qualified estate planning attorney today.