Pub. 6 2015 Issue 1

spring 2015 21 West Virginia Banker pursue non-probate assets to recover Medicaid funds, although some have opted to do so. To date, West Virginia has not elected to broaden its Medicaid estate recovery program to pursue non-probate assets. Since property transferred by a TODD is a non-probate asset, the single biggest advantage of a TODD for many West Virginians will be the opportunity to protect their home from Medicaid estate recovery. While the same result may be reached with certain types of trusts, a TODD provides the benefit of protection without the time and expense of extensive estate planning. Should Lenders Be Concerned? A lender need not be concerned about taking a collateral interest in real property from a property owner who has created a TODD. The Act clearly provides that the existence of a TODD does not affect the rights of any secured creditor, even if the creditor has actual or constructive notice of the TODD. A TODD beneficiary will take title to the property subject to any and all liens, deeds of trust, and encumbrances to which the property is subject at the time of the transferor’s death, regardless of when the TODD was executed, even if the TODD predates a lien. Title insurance underwriting guidelines available to the authors reveal that title insurance loan policies may be issued with respect to collateral interests in property subject to a TODD without exception for the beneficiary’s potential future interest in the property. During the life of the transferor, the beneficiary of a TODD has no vested interest in the property. Consequently, a lender must not take a collateral interest from a TODD beneficiary until after the transferor has died. Care should be exercised to ensure that the beneficiary’s interest under the TODD has in fact vested and is not subject to, for example, the ownership interest of a surviv- ing joint tenant of the original transferor. The transfer to a TODD beneficiary that occurs upon the death of the transferor is subject to the same limitations on “due on sale” clauses that apply to other types of property transfers under the Garn-St Germain Depository Institutions Act of 1982, as codified at 12 USC § 1701j-3(d). Finally, the same features of the Act that create potential Med- icaid estate recovery benefits also create problems for unsecured creditors of a deceased debtor. Because a TODD removes prop- erty from the probate estate, the property will pass to the benefi- ciary without having to be subjected to potential claims of cred- itors that may be asserted in the probate process. Interestingly, the model version of the Act promulgated by the Commissioners on Uniform State Laws includes sections that make TODD real property subject to such claims in probate, but the West Virginia Legislature chose not to adopt those sections. n DavidG. Hammond and Jared J. Jones are attorneys intheCharleston,WestVirginiaofficeofLewisGlasser Casey &Rollins, PLLC. Mr. Hammond’s practice is fo- cused intheareasofcommercialtransactions,finance and real property. Mr. Jones’s practice is focused in the areas of estate planning and taxation. They may be reached at telephone number (304) 345-2000, or byemailatdhammond@lgcr.comor jjones@lgcr.com.