Considering a Transfer on Death Deed? The Minnesota Court of Appeals says to think again.

One of the primary goals of estate planning is to avoid the need for assets to go through probate. If done correctly, considerable time and expense may be avoided. To help achieve this, the legislature created Transfer on Death Deeds (TODDs), which allow for the transfer of real property outside of probate at the time of death.

A recent decision by the Minnesota Court of Appeals, however, could impact the effectiveness of TODDs in achieving that goal. Woodard v. Krumrie, A19-0800, 2020 WL 996746 (Minn. Ct. App. 2020), successfully argued at the Court of Appeals by Hellmuth & Johnson’s Brian Niemczyk and myself, illustrates the risk of using TODDs without fully considering the consequences of such a transfer.

What is a Transfer on Death Deed?
A TODD is a type of deed that automatically transfers real property upon death without having to go through probate. Many people chose to execute TODDs as an easy and effective alternative to a testamentary transfer via will. However, executing a TODD may not be a fool-proof way to transfer property, especially in light of the Court of Appeals’ decision in Woodard v. Krumrie.

Woodard v. Krumrie Summary
Back in the 90s, the Krumries sold their family farm on a contract for deed to their daughter and then son-in-law, Jeffrey Woodard. After a divorce proceeding, Jeffrey was granted sole ownership in the contract for deed purchaser’s interest. The contract contained an anti-transfer provision, which stated that the “purchasers shall not sell, assign or otherwise transfer their interest without written consent of the sellers.”

Twenty-four years later, shortly before he died, and unbeknownst to the Krumries, Jeffrey executed a TODD purporting to transfer his interest in the contract for deed to his son. Upon learning of this transfer, the Krumries served the son with a notice of cancellation of the contract for deed. The notice of cancellation advised the son that the default was buyer’s breach of the non-transfer clause, which required the Krumries’ permission for any transfer of the buyer’s interest.

The son brought suit, seeking to enjoin the cancellation of the contract for deed. The son lost on summary judgment. The Minnesota Court of Appeals unanimously affirmed, holding that: (1) a TODD is a transfer of an interest in the property; (2) the TODD materially breached the unambiguous restriction on transfer in the contract for deed; and (3) cancelation was the appropriate remedy. As a result, the Krumries were able to regain full ownership of the farm.

The Court of Appeals held that since the anti-assignment clause was one of only two specifically bargained for clauses added to the standard contract for deed, control over future ownership of the property was a material part of the agreement. Not allowing the Krumries to cancel the Contract for Deed for this type of transfer despite the clear contractual language on this point would have resulted in the property being in the possession of someone they did not approve – which would be directly contrary to the anti-assignment clause the parties agreed upon.

The Minnesota Supreme Court declined to take the case.

 What does this mean moving forward?
TODDs are perfectly suited for many situations, and are often effective tools for transferring real property outside of probate. Woodard v. Krumrie, however, serves as a cautionary tale for what could result from using TODDs to attempt to transfer property that is subject to an anti-transfer provision.

As you consider your estate planning options, I recommend consulting with an attorney to determine whether a TODD is the right choice for your situation. Hellmuth & Johnson has a team of estate planning attorneys who stand ready to assist you in this regard. We also have a team of litigation attorneys if, like in Woodard v. Krumrie, the matter becomes litigious.

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