How does a Transfer on Death Form Affect an Active Contract to Sell Land

[7rashcan]

My question involves estate proceedings in the state of: Kansas

Background:
The last grandparent on my mother's side recently passed away. Before this grandparent passed, they entered into a contract with an external party to sell a plot of land. The proceeds of this land would have been used to pay off the estate's debt. The children of this grandparent understood the intention of this contract.

Two day's before this grandparent passed away (which was unexpected), a Transfer on Death (TOD) form was signed stating something to the effect of: On death, the ownership of this plot of land will be transferred to Party X. The TOD was signed after the contract (between the grandparent and the external party) to sell the land was signed. The purpose of the TOD was to act as a fail-safe; if the contract to sell the land fell through and the grandparent passed away, then Party X would receive the land. The purpose of the TOD was also understood by the children.

Fast-Forward to Today:
Party X believes that the proceeds from selling the land should go to them and not to the grandparent's estate. If this is true, this means that the estate will have to sell property (that was supposed to be split up between the children) in order to pay off the debt. This was supposed to be done with profits from the land sell. The contract to sell the plot of land to the external party is still active; it didn't fall through.

Question #1:
After a contract to sell a plot of land has been signed by two parties, can a Transfer on Death form be signed for the same plot of land? Due to the aftermath from recent events, my mother asked the same clerk that gave her the TOD form. The clerk didn't know that the land had already entered into a contract to be sold. And the clerk really didn't give my mother a straight answer.

Question #2:
If the TOD is valid, do the proceeds of this land sell go to the estate or to Party X? The contract was between the grandparent and the external party. Party X wasn't apart of the contract in any way.

Thank You,
j

[Mr. Knowitall]

You should run the actual documents past a real estate lawyer, preferably one who also handles probate matters. The exact language and terms of the TOD form could affect the outcome, as well as the decedent's mental state at the time it was signed and whether it was properly executed. There could also be issues of undue influence or even fraud, depending upon how this was orchestrated and what promises or representations were made by Party X (or persons associated with Party X) in relation to the land, whether the grandparent was represented by counsel, and the like.

If the purchase contract was already in effect, absent some unusual facts that you have not suggested might exist, the TOD form and associated transfer would not void the purchase agreement. The new owner would take subject to the contract. But that doesn't seem to be at issue - the only issue appears to be "who gets the money from the sale that is continuing as planned."

Who is this "clerk" you are talking about and what is their role in the scenario? You say "my mother asked the same clerk that gave her the TOD form" - are you saying that the TOD form was your mother's idea and that she filled it out and had your grandparent sign the form? Should we infer that your mother is not "Party X"?

[Foster_Foster]

Do you mean a beneficiary deed?

If valid/enforceable (and no reason to presume it wasn't executed properly; you'd have to ask a real estate attorney whether it being recorded or not makes any difference whatsoever), such a document would likely be a default of the purchase contract. If new owner wants to sell to this buyer, then seller has suffered no damages to go after the estate for.

"Party X believes that the proceeds from selling the land should go to them and not to the grandparent's estate."

I gather what Party X doesn't get is that (s)he, if the TOD is valid, owns the property and the contract's no good.

"This was supposed to be done with profits from the land sell."

Who cares whether the estate debt is covered, unless the estate debt consists of debt to a family member or a family member co-signed for it?

"The contract to sell the plot of land to the external party is still active; it didn't fall through."

Well, it can't very well be any good if the TOD is valid.

"After a contract to sell a plot of land has been signed by two parties, can a Transfer on Death form be signed for the same plot of land?"

It WAS signed, so the "can" question is moot.

"And the clerk really didn't give my mother a straight answer."

Uhm, it's not some court clerk's job to answer your mother's questions; the clerk should have said "ask a lawyer."

"If the TOD is valid, do the proceeds of this land sell go to the estate or to Party X?"

I should think the answer to this is obvious, but see above.

"The contract was between the grandparent and the external party. Party X wasn't apart of the contract in any way."

Yeah, but if the TOD is valid, the estate no longer owns the property, so ....

Someone ought to discuss with a local real estate attorney.

I disagree that if "everyone understood" what the purpose of the TOD was that they can now successfully argue that they believe undue influence was in play (that this TOD beneficiary threatened to do X-Y-Z to the grandparent, say put him/her in a home and that grandparent was mentally fragile). Nothing indicates the person was not mentally competent to enter into the sales contract, so arguing that (s)he was incompetent to enter into the TOD makes no sense.

[harrylime]

I gather what Party X doesn't get is that (s)he, if the TOD is valid, owns the property and the contract's no good.

Kansas Statutes:

59-3504: Same; vesting of ownership in beneficiary; grantee beneficiary. (a) Title to the interest in real estate recorded in transfer-on-death form shall vest in the designated grantee beneficiary or beneficiaries on the death of the record owner.

(b) Grantee beneficiaries of a transfer-on-death deed take the record owner's interest in the real estate at death subject to all conveyances, assignments, contracts, mortgages, liens and security pledges made by the record owner or to which the record owner was subject during the record owner's lifetime including, but not limited to, any executory contract of sale, option to purchase, lease, license, easement, mortgage, deed of trust or lien, claims of the state of Kansas for medical assistance, as defined in K.S.A. 39-702, and amendments thereto, pursuant to subsection (g)(2) of K.S.A. 39-709, and amendments thereto, and to any interest conveyed by the record owner that is less than all of the record owner's interest in the property.

[Foster_Foster]

And without seeing every part of that chapter, I'd want to understand whether recordation is part and parcel of the requirement. Unfortunately, legislatures don't put everything relevant in one place. (For instance, someone may think their landlord is subject to X that they see in a statute, and they don't know there are conditions and exemptions and exceptions stuck elsewhere in the same chapter and find out their landlord isn't subject to the statute after all.)

Boiled down, since the beneficiary wants to sell the property, it's not a matter of the beneficiary owing the estate any money (as for "estate debt" you mention, if a mortgage on this place, it would have to be covered in order to give clear title to the buyer anyway).

[Mr. Knowitall]

I disagree that if "everyone understood" what the purpose of the TOD was that they can now successfully argue that they believe undue influence was in play (that this TOD beneficiary threatened to do X-Y-Z to the grandparent, say put him/her in a home and that grandparent was mentally fragile). Nothing indicates the person was not mentally competent to enter into the sales contract, so arguing that (s)he was incompetent to enter into the TOD makes no sense.

The real estate transaction would only be voided if somebody wants to void it. Thus, assuming incompetence is proved but in such a manner that it would extend back in time to the date of the sales agreement, unless the estate or the beneficiary of the TOD want to scuttle the sale the contract will remain in effect. Further, if the issue is undue influence, there's no reason to believe that undue influence by a beneficiary who seeks to divert the proceeds of the sale from the estate to himself/herself, personally, would have exercised any influence in relation to the sales agreement, and even if there were such evidence we're back to "it only matters if somebody tries to set aside the sales agreement".

If you believe that every post here includes all relevant facts, such that possible approaches to challenging such a transfer should not be discussed, great. But I make no such assumption, and thus will at times ask for clarification or discuss issues or claims that might come into play based upon the full facts. Nobody said "The grantor is incompetent", so let's not play that game.

And without seeing every part of that chapter, I'd want to understand whether recordation is part and parcel of the requirement.

Knock yourself out. But there is absolutely no reason to believe that the OP is concerned about a theoretical possibility that Party X won't be bound to the sales agreement. The question asked explicitly states that "The contract to sell the plot of land to the external party is still active; it didn't fall through" and relates explicitly to the proceeds of the sale. Perhaps despite your prior complaints you were exploring this in the hypothetical?

[harrylime]

And without seeing every part of that chapter, I'd want to understand whether recordation...

Of the TOD Deed? Yes, it has to have been recorded.