Curious Iowa: Why doesn’t Iowa authorize transfer on death deeds for real property?

Two years ago, Habitat for Humanity of Iowa received a call from the Knoxville Community School District. It was the dead of winter and an elementary school student was living in a home heated by space heaters. The family home’s furnace had gone out and they couldn’t afford to replace it.

The home was still in the name of a deceased family member, who had made it clear upon his passing that he wanted the house to go to the student’s mother.

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“There are state programs and county programs for people that are lower income that have their furnace go out,” Lisa Houser, Executive Director of Habitat for Humanity of Iowa, said, “but because the house was not in (the mother’s) name, she could not qualify for those programs.”

Habitat for Humanity of Iowa assisted the family’s furnace replacement through private funds, but Houser said, “there are more people living like this in our state than we want to admit.”

Houser said that the cost of probate is prohibitive for a lot of lower income families, “and so then they end up living in the house that is still in the name of the deceased individual and then that just causes additional problems down the road.”

“If grandpa, who had made it clear that he wanted her to have the house, if he could have just signed a quick deed, had it notarized and taken it up to have it recorded at the county recorder’s office, she would have had (the house) automatically transferred into her name upon his passing,” Houser said. “And so they only would have had like a $25 recording fee, if that even, as opposed to $6,000 to transfer the house into her name.”

This is one of the stories that Habitat for Humanity of Iowa shared with the Iowa Legislature last year when advocating for the Uniform Real Property Transfer on Death Act (URPTODA), which would allow Iowans to use transfer on death (TOD) deeds. TOD deeds for real property allow people to transfer property without going through the probate process, which supporters say is costly and time consuming.

Thirty states have passed or enacted laws similar to the URPTODA and Greg Stewart, of Fairfax, wondered why Iowa is not one of them. He told The Gazette he feels that Iowa’s position on real estate transfers on death are “behind the times” and will force his children into the probate process.

He asked Curious Iowa, a Gazette series that answers readers’ questions, to investigate. We spoke with Iowa lawyers familiar with the probate process and groups who are advocating for and against changing the Iowa Code to allow TOD deeds for real property.

How is real property currently transferred when the owner dies in Iowa?

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Broadly speaking, property is transferred after a person dies through a few ways: wills, trusts, and intestacy, or dying without a will. The only way that the probate process can be avoided in Iowa is by establishing a revocable trust, Sarah Barr, an attorney at Shuttleworth & Ingersoll who focuses on estate matters, told The Gazette. When one sets up a trust, they pay costs up-front.

If you pass away with a will and real property, it will go through the probate process. Whether or not a property is mortgage-free does not change how ownership transfers.

In Iowa, real estate is a probate asset, as is personal property like vehicles, jewelry and collectibles, and bank accounts without payable-on-death or transfer-on-death designations.

Non-probate assets transfer automatically at death to the named beneficiary or surviving joint owner and do not pass according to a will. Barr said common non-probate assets include real estate owned jointly with rights of survivorship, assets held in a revocable or irrevocable trust, or retirement accounts with beneficiaries designated.

“If you’re a married couple, you’re going to avoid probate, ideally, on the death of the first spouse,” Barr said. “You’ll have to do probate once the second spouse passes away, if they individually own real estate when they pass away.”

The probate process typically takes six to 12 months, Barr said, and costs roughly 2 percent of the value of the estate.

What is the Uniform Real Property Transfer on Death Act?

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The Uniform Law Commission is a nonprofit association that works to establish consistent rules and procedures state to state. They are behind the URPTODA, which has been introduced in the Iowa Legislature four times since 2016.

Mark Stephen Hart wrote about the URPTODA in 2023 while working as a student writer for the Iowa Law Review. Hart told The Gazette that the state of Missouri, where he now practices law, in 1989 became the first state that allowed real property to be transferred through TOD deeds.

TOD deeds are revocable. A person retains ownership during their lifetime and can designate one or more beneficiaries. When the owner dies, the beneficiary takes on the property, subject to all mortgages, liens and encumbrances. The owner would simply complete the TOD deed form, have it acknowledged before a notary and record the form in the county where any part of the property is located.

“The TOD deed for real property allows people to get what is, in many cases, the most significant part of their estate to whomever they wish in an efficient manner that doesn’t take the time, doesn’t take the cost of probate or the complexities of a trust,” Hart said.

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Randal Caldwell has been practicing law for over 40 years and has held a variety of positions with groups like the Iowa State Bar Association, American College of Trust & Estate Counsel and the Iowa Academy of Trust & Estate Counsel.

In 2016 when the URPTODA was introduced, Caldwell was asked to “see if there were amendments that needed to be made before the (Iowa) Bar Association could hop on board.”

“And the result of mine and other people that were involved in that committee was that we just didn’t see any amendments that would make this palatable and make it a better system for Iowans than the one we had, particularly since we had recently implemented a $50,000 affidavit procedure for non-real estate matters and a $200,000 cap on what we call small estate administration procedures, which is a simplified form of probate that a lot of states don’t have,” Caldwell said.

The act was most recently introduced last session, as companion bills House File 125 and Senate File 408. HF125 was signed off on by a House subcommittee, but the House Judiciary Committee did not take it up. Meanwhile, SF408 did not pick up any steam in the Senate.

Houser said Habitat for Humanity of Iowa spent time that year educating lawmakers about TOD deeds. She said that this advocacy was driven by an increase in calls for assistance and advice when families don’t have a clean title to their home.

For example, after the Marshalltown tornado in 2018, Iowans without a clean title had difficulty getting assistance from disaster relief programs. Plus, many did not have insurance on their homes because their name was not on the title, Houser said.

Support for the URPTODA has been mixed.

“It seems like we’re finding people are either really supportive of it or just don’t think it’s a right fit for Iowa, and so our take is, we know this is a problem. There’s need (for Iowans) to have an affordable way to transfer their real property. But if some people don’t think that transfer on death deeds are right for Iowa, we’re open to conversations on other solutions.”

The Iowa Academy of Trust & Estate Counsel, of which Caldwell is a member, is one of the groups that registered against the bills. The counsel had concerns over lost revenue to the state and opportunities for misuse.

Unlike a will, no witnesses are required for TOD deeds. This raises concerns regarding elder abuse and abuse of people with impaired decision-making capacity.

Caldwell also believes that support for the URPTODA is based on misunderstandings.

“One is that it’s a deed, and it is not a deed. It’s a will substitute ... When you get into the nuances of it, there are a lot of ways you can screw this thing up,” he said.

He gave the example of having something written in a TOD document that is different from what the transferor wanted.

“In TOD instruments, it doesn’t make any difference, it’s what’s in the deed ... so if you end up saying, ‘Mom never wanted that,’ and then you go to court, you’re out of luck,” Caldwell said, adding that he believes that the client’s intent should matter.

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“If you have a situation where you want to leave everything to your spouse and then to your two kids and you have a TOD deed and you fill that out ... and then one of your kids tragically passes away, their kids don’t get anything,” Caldwell said. “They are cut out, and that’s because that’s the way the law is. That’s the way the instrument has to be.”

Paige Yontz, state advocacy manager for AARP Iowa, said AARP Iowa registered in support of the bills because simplifying and expediting the probate process would “empower AARP members and all Iowans.”

“This is really an effort to streamline the process and just make sure that the wishes that people have are executed upon their death specific to property,” Yontz said.

In a statement provided to The Gazette, the Iowa Funeral Directors Association said it “opposes transfer on death deeds because it takes assets out of an estate, which inhibits our ability to recoup payment for services rendered.”

What would it take to change the process?

In 2012, the state of Illinois adopted a transfer on death instrument statute, which differs from the URPTODA.

“Frankly, I think you would want to start with the Illinois act and then you would try to address these other issues ... but I don’t think (the URPTODA) addresses any of these problems,” Caldwell said.

Yontz said it will take “some good conversations” between the housing advocacy and legal sides of the lobby.

“I think that there is a balance to be sought between streamlining it but also making sure that it’s done correctly and done effectively,” Yontz said, “so I think it’s just getting the right people at the table to have those conversations.”

“We just know that there is a problem in the state, and we should have a more affordable solution for families,” Houser said.

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Comments: bailey.cichon@thegazette.com

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