A new Minnesota law comes into effect on August 1, 2024, which flags the importance of addressing insurance coverage within your estate plan, especially if your plan utilizes transfer on death deeds. A transfer on death deed (“TODD”) is a conveyance instrument by which a property owner may provide for his or her interest in real property to be transferred to a certain individual or entity (a “grantee beneficiary”) upon the property owner’s death.

WHAT HAPPENED: THE CASE

The new law results from the facts of a 2019 federal court case, Strope-Robinson v. State Farm Fire and Casualty Company:[1]

• A property owner executed and recorded a TODD to transfer his house to his niece.
• Shortly thereafter, the property owner passed away, and just six days after his death, the property owner’s ex-spouse intentionally set fire to the home.
• As the grantee beneficiary of the TODD, the niece took ownership of the property upon her uncle’s death and filed a claim with his homeowner’s insurance provider for the fire damage.
• The insurer denied the claim for any damage to the real property because the niece was not the named insured under the policy.

The Court ultimately found that, because the insurer had no contractual relationship with the niece as the owner of the property, and the uncle’s estate no longer had an insurable interest in the property at the time of the fire, the insurer was not required to cover the property damage.

WHAT’S NEXT: A WARNING REGARDING COVERAGE

This case exposed a contractual and legal loophole in property insurance coverage that the Minnesota Legislature sought to close with this new law. Beginning August 1, 2024, Minnesota Statutes Section 507.071 subd. 2 will clarify that:

“Until a transfer on death deed becomes effective, it has no effect on title to the real property … but it does create an insurable interest in the real property in favor of the designated grantee beneficiary for purposes of insuring the real property against loss or damage that occurs on or after the transfer on death deed becomes effective.”

To ensure property owners are aware of this insurable interest, all TODDs executed on or after August 1 must contain a new warning to property owners and their grantee beneficiaries:

“Warning to Grantor Owner: Temporary extended coverage of any fire and casualty insurance policy on the property under Minnesota Statutes, chapter 65A, will exist only if the grantor owner has given notice to the insurer under Minnesota Statutes, section 507.072, subdivision 3, including the existence of a transfer on death deed and the names and contact information of all designated grantee beneficiaries. Any temporary extended coverage terminates on the earlier of (1) 30 days after the date of the grantor owner’s death, (2) the expiration date of the policy, or (3) upon placement of a replacement insurance policy.

 Warning to Grantee Beneficiary: A grantee beneficiary shall not presume insurance coverage continues after the death of the grantor owner. Upon the death of the grantor owner, the grantee beneficiary should determine whether the provisions of Minnesota Statutes, section 507.072, apply and consult with an insurance agent or attorney.”

WHAT TO DO: PROVIDE NOTICE TO INSURERS

Finally, to avoid a future situation like the arson case, the new law requires insurers to provide thirty (30) days of temporary extended coverage on the real property in favor of the grantee beneficiary after the death of the property owner who granted the TODD, or after expiration of the property owner’s existing insurance policy, whichever is sooner.

However, this coverage is only applicable if the property owner notifies the insurer of the existence of the TODD and the names and contact information for the grantee beneficiary.

To pay a claim pursuant to such coverage, an insurer may also require proof that:

• the claimant is the grantee beneficiary under a TODD from the property owner;
• the TODD was recorded as required by law; and
• an Affidavit of Survivorship and Certificate of Death for the deceased property owner was recorded as required by law, to establish that the grantee beneficiary is the current owner of the property.

Therefore, providing notice to your property insurance provider(s), and your grantee beneficiaries, of TODDs within your estate plan is a new and crucial step in the estate planning process for those who wish to pass real property to their loved ones using this type of conveyance instrument. We recommend reviewing your estate plan documents and contacting your insurance agent to provide notice of any TODDs.

Specifically, if you have executed a TODD for estate planning purposes, you may have named a revocable trust as the grantee beneficiary under the TODD.  Your insurance company may be able to add each revocable trust named on the TODD as an additional insured on your insurance policy, so that coverage would continue to extend to the trust in the event the property ultimately passes under the TODD upon the death of the grantor(s).  This ensures that coverage for a trust extends beyond the thirty (30) days granted under the new law.  Please review your TODD and contact your insurance agent to determine what updates may be necessary to your insurance coverage.

[1] Strope-Robinson v. State Farm Fire & Cas. Co., 429 F. Supp. 3d 634 (D. Minn. 2019), aff’d, 844 F. App’x 929 (8th Cir. 2021)