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TOD Vehicle Titles: Where There’s a Wheel, There’s a Way

Fri, 11/17/2017 - 09:53 -- admin25

by Samuel E. Long Jr.

The average cost of a new vehicle now exceeds $30,000 and some “motor vehicles” such as recreational vehicles far exceed that in value. A vehicle may be a principal asset even in small estates and, for various practical reasons, may often need to be sold or transferred promptly upon the owner’s death.

The transmission of property at death increasingly is accomplished by nontestamentary forms of transfer. This trend has been fueled by many factors, including sticker shock at the cost of legal services, the complexities and delay of probate processes, and the availability of self-help tools.

In response, the Texas Legislature has authorized “transfer on death” (TOD) title registration of motor vehicles, enacting new Chapter 115 of the Estates Code which became effective September 1, 2017. The Transportation Code authorizes the designation of a beneficiary on title applications to whom the owner’s interest in the vehicle will transfer on the owner’s death.

These TOD title statutes create a new Texas form of revocable, nontestamentary transfer. Chapter 115 mirrors some of the provisions of the TOD real estate deed legislation (Chapter 114 of the Estates Code) enacted in 2015. TOD registration is more expansive than joint survivorship, which was permitted under prior law.

It can be used even when the decedent has a will, and a will cannot revoke a TOD designation. It can also be combined with joint survivorship, with multiple joint owners making a TOD designation taking effect upon on the death of the last joint owner.

When there are joint owners with rights of survivorship, the beneficiary designation must be made by all the joint owners, and each must consent to any revocation.

A TOD designation is effective without consideration or notice or delivery to the beneficiary. The designation is subject to disclaimer by the designated beneficiary in the same manner as any other property.

 It is important to note that the designated beneficiary takes the motor vehicle subject to any liens or encumbrances secured by the vehicle.

As with TOD deeds, a TOD designation does not necessarily exempt the vehicle from creditor claims, allowances in lieu of exempt property, or family allowances. Further, the designation does not affect an owner or beneficiary’s eligibility for public assistance, subject to applicable federal law. The beneficiary has no rights during the original owner’s lifetime.

If a designated beneficiary does not survive the owner by more than 120 hours, the designation is treated in a manner similar to the “anti-lapse” provisions of the Estates Code. In this situation, if the beneficiary is a descendant of the vehicle owner or a descendant of the vehicle owner’s parent, the gift will pass to the designated beneficiary’s descendants as if the gift were made pursuant to a will that did not address survivorship. These rules could create practical issues if descendants are minors, incapacitated persons, or there are multiple descendants who take by right of representation.

In contrast, the Chapter 114 TOD deed provisions contain extensive alternate options for survivorship and lapse.

Chapter 115 does not prohibit or limit the use of TOD vehicle titles by married persons or require spousal consent to a TOD designation. In fact, section 115.001(3) specifies that the term “joint owner” does not include an owner of community property. For example, assume X, whose spouse is Y, purchases a motor vehicle with community funds. The vehicle is titled in the name of X, with a TOD beneficiary designation of Z rather than Y. On the death of X, does Z have title to the vehicle free and clear of any claim of community or exempt property of Y? If not, how does Y protect Y’s interest?

The Transportation Code now provides authority for designation of a TOD beneficiary on an application for title, for revocation of such designations, and a procedure for transfer of title to the designated beneficiary. The beneficiary will be required to submit an application for transfer of title within 180 days of the owner’s death, and provide satisfactory proof of the death of the owner or owners. As of this writing, the Texas Department of Motor Vehicles has not yet promulgated forms or guidance on the new law.

It remains to be seen how widely TOD vehicle title designations will be used. While there are many factors that could either accelerate or put the brakes on their use, Chapter 115 is a new addition to the battery of tools for the estate planner.

Update/Author's Note (August 15, 2018): At the time of this article, the Texas Department of Motor Vehicles had not promulgated a form for a beneficiary designation to implement the new statute that became effective in September 2017. They have now done so. To access the form, click here https://www.txdmv.gov/forms and select Form VTR-121, the new "Beneficiary Designation for a Motor Vehicle” form.

Samuel E. Long Jr. is an attorney with the law firm of Shackelford, Bowen, McKinley & Norton, LLP and adjunct professor at UNT Dallas College of Law. He can be reached at slong@shackelfordlaw.net.

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