Iowa Court of Appeals Affirms Transfer-on-Death Deed of Farmland as Void
On June 16, 2021 the Iowa Court of Appeals issued a ruling involving ownership of a family farm. The plaintiffs’ grandparents attempted to execute a transfer-on-death (TOD) deed conveying the farmland upon their deaths to their three children. Because TOD deeds are not valid in Iowa, the Court of Appeals affirmed that the land must pass through the grantor’s estate.
In 1974, Charley and Lillie Smith, in an apparent attempt to avoid probate, executed a “warranty deed” conveying the family farm to their three children, Mona, Carolyn, and Ward. However, the deed included language stating that the couple retained “the right to mortgage, sell, or transfer said property for and during their natural life and the natural life…without the consent of the grantees herein. It is understood …that they are creating or retaining an estate in joint tenancy with right of survivorship in the above described property for themselves as husband and wife.” The deed was recorded in 1982.
In 2006, after Charley passed away, Lillie executed another deed, but this time excluded Mona from the conveyance. This deed contained similar language to the first reserving all rights in the property to Lillie during her life. That same day, Lillie executed a “directive and agreement” explaining her decision to exclude Mona out of concern that the government may otherwise have a claim to the farm since Mona received government assistance for a health condition. The deed was never recorded.
Mona passed away in 2010. Several months later, upon learning that the original deed had been misplaced, Lillie executed another warranty deed with nearly identical language as the previous deed. This deed was drafted by an attorney, but the recorder’s office refused to record it. Lillie died intestate several years later, but no estate was opened.
In 2016, Mona’s five children learned of their interests in the farmland after receiving payments from a utility company for the purchase of farmland. Two of Mona’s children executed quit claim deeds conveying their interest to their siblings. Those three siblings petitioned the court to partition the farm, claiming to have a one-third interest in the property. Carolyn and Ward, as the defendants, resisted and asked the court for quiet title in their names under the 2006 and 2010 deeds. The district court denied the defendants’ request and found that the 1974 deed attempted to give the grantors an impermissible “power of disposal.” The court found that the 1974, 2006, and 2010 deeds were all attempted beneficiary or TOD deeds, for which there is no authority in Iowa. However, the court concluded that the 1974 deed did grant Lillie and Charley a life estate. As such, Lillie could not convey the same property a second time, and the 2006 and 2010 deeds attempting to divest Mona of ownership were invalid. The defendants appealed.
Validity of the 1974, 2006, and 2010 Deeds
On appeal, the court first assessed the validity of the three deeds. TOD deeds automatically transfer ownership of property to the designated beneficiary upon the death of the grantor, allowing the property to pass outside of probate. A life estate is not created with a transfer-on-death deed because the grantor retains all rights until death.
Charley and Lillie intended to use the 1974 deed to retain all rights in the property and then, upon their deaths, devise the property to their children without the use of probate. Both the district court and Court of Appeals determined that the 1974 deed was an attempted TOD deed. The court explained that Iowa has not authorized the use of these deeds. The defendants, also agreeing this was an attempted TOD deed, nevertheless claimed the court should adopt them now.
The Court of Appeals rejected the defendants’ argument instead choosing to follow Supreme Court precedent. The court also rejected the district court’s solution interpreting the permissible language of the unauthorized TOD deed to conclude that Lillie had a retained life estate. The Court of Appeals found that this remedy ignored the grantors’ intent to retain joint tenancy with rights of survivorship, explicitly stated in the deed, and contradicted Iowa law on the issue. The grantors could not, under the law, implement their intentions to both retain ownership as joint tenants and give the farm to their children through an inter vivos conveyance. Because of this contradiction or “repugnancy,” the court found that the deed was void. In the same way, the 2006 and 2010 deeds were void as impermissible TOD deeds. Therefore, the farm must pass through Lillie’s estate under intestacy law.
Alternatively, the defendants argued that the 1974 deed constituted an enhanced-life-estate deed allowing the grantors to retain the power of disposal. An enhanced-life-estate deed transfers ownership of the property during life, but allows the grantor to use the property as if she was still the original owner. However, Iowa does not recognize enhanced-life-estate deeds and has only recognized the power of disposal for testamentary conveyances. Because the deeds were an inter vivos conveyance, the court concluded that all three deeds were void.
TOD Deeds in Iowa
The court points out in this opinion that around 30 states have adopted statutes authorizing TOD deeds. Most of these states have adopted these rules in the past decade. The Uniform Real Property Transfer on Death Act has been introduced in the Iowa legislature at least three times without being adopted, the last time in 2020. As this case makes clear, the adoption of TOD deeds in Iowa would have to come through the legislature, not the courts.
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.