January 10, 2020

Transfer on Death Designation Affidavits and Insurance Claims

by Christopher Vonau, Decker Vonau

The Transfer on Death Designation Affidavit (TODDA) is a valuable estate planning tool. As authorized under ORC 5302.23, estate planning practitioners commonly recommend that a client who owns real estate, whether commercial or residential, execute a TODDA that essentially acts as a non-probate beneficiary designation naming who the current owner would like to be the successive owners for a particular piece of real estate.

Like all non-probate beneficiary designations, TODDAs can be implemented to avoid complex and time-consuming probate administrations. Avoiding unnecessary probate by using TODDAs is appealing to clients as it saves their loved ones time and money administering their estates.

However, there is a potential "glitch" in its use when it comes to property insurance coverage. A recently decided case out of Hamilton County, Ohio, specifically Walker on behalf of Estate of Walker v. Albers Insurance Agency, states that using TODDAs may cause a “gap” period in terms of the coverage provided by the property insurance company. While the case deals with a Release from Administration situation, which in general will be discussed as one of the highlights of the 2020 Probate Law Institute scheduled on May 20, the Ohio Court of Appeals 1st District seems to suggest that the decedent’s property insurance policy purchased and maintained during their life may not cover losses incurred after death if the decedent chose to transfer the property by way of a TODDA instead of positioning the fiduciary of their estate to transfer the property through a full administration in probate court.

So, where do we go from here? Does naming TODDA beneficiaries as additional insureds under a client’s present policy solve the problem? And if so, will insurance providers even accept them as additional named insureds? Assuming they will allow this, doing so may cause other problems should it become necessary to file a claim before the affiant’s death. In such a case, the affiant and current owner might need to get all of the beneficiaries’ signature on any claim for a loss during their lifetime.

One planning tactic seems to be clear at this point: in order to eliminate any “gaps” in coverage, it is essential for the TODDA beneficiaries to purchase a new policy naming them as insured and owners immediately upon the death of the person who signed the TODDA to ensure that the real estate is covered by insurance for casualties the occur after that individual’s death.