You Need to Act Now on Estate Planning and Transfer of Death Deeds. Here's Why.

It's an unthinkable scenario. A property owner passes away and soon after their death a fire destroys their house. Then, the combination of the Transfer on Death Deed (TODD) law and the insurance contract prevent the recovery of any insurance benefits on the loss. 

The situation happened in Strope-Robinson v. State Farm, and it spurred Minnesota lawmakers to fix it. A new law effective August 1, 2024 will help protect against this inequity but homeowners and estate administrators must take action to comply with the law to receive its protections.

Summary of the Case

Dawn-Strope Robinson inherited her uncle’s house in Minnesota through a Transfer on Death Deed (TODD). TODD is used to pass property directly from a decedent to the beneficiary at the time of death and avoids the need to probate the asset. She unfortunately discovered that a TODD is limited to property ownership, and doesn't automatically trigger an insurance transfer.

One week after her uncle passed away, his ex-wife intentionally set fire to the house. Strope-Robinson filed a claim with State Farm, whom her uncle had insured the house to recover damages caused by the fire. State Farm rejected the claim on the house, claiming that ownership of the house had automatically passed to Strope-Robinson under the TODD but the insurance policy was issued to her uncle and was not transferred to her.

Strope-Robinson appealed to the courts, eventually reaching the U.S. Eighth Circuit of Appeals. The Eighth Circuit sided with the insurer. Strope-Robinson was left with a destroyed home.

Closing the Transfer Gap

Strope-Robinson v. State Farm highlighted a disparity in estate settlement. If the house had been left to the descendant’s estate, the estate would have had standing to receive benefits under the insurance policy. However, property passing by TODD does not grant the new owner any standing under the insurance contract owned by the decedent or estate. Seeing potential for insurance companies to deny coverage because a house passed by TODD, the Minnesota legislature passed a law to mitigate the continuation of coverage issue.

However, the continuation of coverage is limited, does not automatically take effect, and requires specific actions by the current owner.

Additions to the law, listed in Minnesota Statutes Section 507.071 subd. 2, take effect on August 1, 2024, and state that:

• “Until a transfer on death deed becomes effective, it has no effect on title to the real property … but it does create an insurable interest in the real property in favor of the designated grantee beneficiary for purposes of insuring the real property against loss or damage that occurs on or after the transfer on death deed becomes effective.”

As a result of this change, all TODDs executed after August 1 must include warnings about the following requirements:

• Temporary extended coverage of any fire and casualty insurance policy on the property will exist only if the grantor owner has given notice to the insurer, including the existence of a TODD and the names and contact information of all designated grantee beneficiaries. 
• Any temporary extended coverage terminates on the earlier of:
• 30 days after the date of the grantor owner’s death, or
• The expiration date of the policy, or
• Upon placement of a replacement insurance policy
• Grantees should not presume insurance coverage automatically transfers after the grantor’s death. Grantees should consult with an insurance agent or attorney to see if the revised law applies to them.

Essentially, any beneficiary receiving property through a TODD should get their own policy on the property within 30 days of the decedent’s death.

What Should You Do?

If you’re a current property owner with an existing TODD on record, you may need to revisit (and potentially revise) that document after August 1. Existing TODD documents will not contain these clauses about insurance transfers, so you may need to create a new TODD to address the issue.

Even if the TODD is clear, confirm the TODD and any policy transferability with your insurer. Remember that the 30-day continuation coverage only takes effect if the insurer can confirm that:

• The new owner is a confirmed beneficiary under the TODD
• The TODD was correctly and legally recorded
• The beneficiary is the legal and current owner of the property after the transfer

In short, contact your attorney and insurer to confirm your TODD will comply with the new law, that you are properly giving notice to your insurer, and your insurer acknowledges the TODD. This will help avoid any immediate insurance gaps for beneficiaries.

Property transfers, like any other wealth transfer, can be tricky to navigate. If you have any questions about how your wealth will extend to beneficiaries, contact us for a free consultation.